10-K 1 FORM 10-K UNITED STATES ------------- Securities and Exchange Commission ---------------------------------- Washington, D.C. 20549 ----------------------- FORM 10-K --------- [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1994 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from _____________ to ______________. Commission File Number: 1-8833 BIG O TIRES, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter)
Nevada 87-0392481 -------------------------------------------------- ------------------------------------------- (State or other jurisdiction of incorporation or (I.R.S. Employer Identification Number) organization)
11755 East Peakview Avenue Englewood, Colorado 80111 -------------------------------------------------- (Address of Principal Executive Offices and Zip Code) Registrant's Telephone Number, Including Area Code: (303) 790-2800 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: $0.10 Par Value Common Stock ---------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _____ ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the registrant's voting stock held as of March 24, 1995, by nonaffiliates of the registrant was $35,473,244.50. As of March 24, 1995, the registrant had 3,311,766 shares of its $0.10 par value common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE ----------------------------------- The definitive Proxy Statement for the 1995 Annual Meeting of Shareholders is incorporated by reference in lieu of the information required by Part III hereof. Total Pages 718. Exhibit Index Page 57 1 PART I ------ Item 1. BUSINESS ----------------- (a) General Development of Business ------------------------------- (a) (1) General. The primary business of Big O Tires, Inc. (the "Company") is to franchise Big O retail stores ("Retail Stores") and supply Retail Stores with tires and related automotive products. On a limited basis, the Company engages in site selection and real estate development for new, franchised Retail Stores, and the Company also owns and operates Retail Stores. As used herein, the term Retail Stores also includes the Company-owned Retail Stores unless a distinction is warranted for clarification. Each independently owned corporation, partnership and sole proprietorship that has entered into a Franchise Agreement with the Company is hereinafter referred to as a "Franchisee" or collectively as the "Franchisees." As shown on the following page, at January 31, 1995, the Company had 378 Retail Stores, 374 of which were franchised and 4 of which were Company-owned. The Company also distributes its products at wholesale prices to 37 unaffiliated retail tire stores in British Columbia, Canada, with which the Company has a user agreement (the "Canadian Licensees"). The Company sells its Franchisees and Canadian Licensees an exclusive line of premium private label Big O brand passenger, light truck, recreational and high performance tires that are primarily manufactured by Kelly-Springfield Tire Company (a division of The Goodyear Tire & Rubber Company) ("Kelly- Springfield") and secondarily for a limited time by General Tire, Inc. (a subsidiary of Continental AG) ("General"). The Company currently distributes tires, its exclusive ProComp high performance wheels and other automotive products through its Regional Sales and Service Centers ("RSC") located in the states of California, Colorado, Idaho, Indiana and Nevada. In June 1993, the Company adopted a plan to consolidate three (3) of its RSCs into a single facility located near Las Vegas, Nevada (the "Las Vegas RSC"). The Las Vegas RSC opened on March 6, 1995. One of the three RSCs that was consolidated into the Las Vegas facility is the Denver, Colorado, RSC, which closed on March 24, 1995. In December 1994, the Company sold its Denver RSC to an unrelated third party. The Denver RSC sale was consummated with a $242,000 down payment, certain rent concessions, and the assignment of the Company's promissory note and mortgage on the facility from the existing mortgage. The other two RSCs that are to be or have been consolidated into the Las Vegas RSC are in the cities of Ontario and Vacaville, California. The Ontario RSC is scheduled to close on or around May 1, 1995. The Company is obligated under the lease on the Ontario warehouse until June 24, 1998. In June 1994, the Company leased the entire Vacaville, California, RSC under an agreement that will continue through March 31, 2000. 2 The following table sets forth the number of Retail Stores, by marketing region, as of January 31, 1995:
=========================================================================================================== REGION # of Franchisee # of Company # of Joint Total Owned Stores Owned Stores Venture Stores * ----------------------------------------------------------------------------------------------------------- SOUTHWEST REGION (includes Arizona, southern parts of 84 1 10 95 California, Nevada; and Utah) ----------------------------------------------------------------------------------------------------------- WESTERN REGION (northern part of California and 97 0 1 98 Western Nevada) ----------------------------------------------------------------------------------------------------------- NORTHWEST REGION (Idaho, Montana, Northern Nevada, 77 1 1 79 Oregon, Utah, Washington and Wyoming) ----------------------------------------------------------------------------------------------------------- CENTRAL REGION (includes Colorado, Nebraska, New 68 0 1 69 Mexico, Oklahoma, South Dakota, Texas and Wyoming) ----------------------------------------------------------------------------------------------------------- SOUTHEAST REGION (includes Indiana, Kentucky and 35 2 0 37 North Carolina) ----------------------------------------------------------------------------------------------------------- TOTAL 361 4 13 378 ===========================================================================================================
* The Company, through its wholly-owned subsidiary, Big O Retail Enterprises, Inc., a Colorado corporation, also enters into retail joint ventures with existing Franchisees so that additional Retail Stores can be opened and, in certain selected cases, may buy an interest in existing Retail Store(s) through an existing joint venture. The Company looks to its joint venture partner to manage the Retail Store and to purchase the Retail Store from the joint venture after three (3) years of operation using a formula allowing for a determination of the purchase price to be paid to the Company. In 1994, twenty-six (26) Franchisee owned Retail Stores were opened and nine (9) were closed. The Company sold five (5) of its Company-owned Retail Stores located in the states of Colorado, Kentucky and Oklahoma to Franchisees, and the Company acquired four (4) previously franchised Retail Stores in Kentucky, two (2) of which continue to be operated as Company-owned Retail Stores. The Company closed four (4) Company-owned Retail Stores located in the states of Colorado, Oklahoma and Kentucky that the Company acquired in 1993 and 1994. The Company continues to look to convert existing retail tire stores and retail tire store chains to the Big O system as part of its growth strategy, but has met with limited success using this growth strategy. The Company has not emphasized the use of Company-owned Retail Stores as part of its business, but in certain circumstances the Company may acquire tire stores and/or retail tire store chains as a means to grow its business. Investment Banker. At the Annual Meeting of Shareholders held in June 1994, the shareholders adopted a resolution calling for the Company to engage an investment banker to explore all alternatives for enhancing the value of the Company. In implementing this resolution, the Company's Board of Directors established the Investment Committee of the Board which retained PaineWebber Incorporated to fulfill this shareholder proposal. In September 1994, the proponent of the June 1994 shareholder proposal, upon invitation by the Board, began assisting the Investment Committee in this process. On December 23, 1994, the Company announced that the Investment Committee had agreed to enter into a period of exclusive negotiations with, and agreed to pay certain expenses of, a group of Company officers, managers and Franchisees ("Dealer- Management Group") that made an offer to acquire the outstanding shares of the Company for $18.50 per share. The Dealer-Management Group originally made the offer to acquire the Company on December 2, 1994, subject to certain conditions including the Dealer-Management Group's ability to obtain the necessary financing. The proposed transaction would have taken the Company private 3 and was led by the Company's President, other officers and managers and Franchisees acting on behalf of certain of the Company's Franchisees. On February 7, 1995, the Company was notified that the Dealer-Management Group elected not to continue negotiations to acquire the Company due to the difficulties in obtaining commitments for the elements of financing necessary to consummate the acquisition and the inability of the representatives of the Franchisees and management to reach mutual understandings on certain fundamental issues relating to the acquisition. The Dealer-Management Group expenses the Investment Committee agreed to pay totalled $115,000. At the time the Dealer-Management Group withdrew the offer to acquire the Company, the Company was also informed by representatives of management that they continue to be interested in completing a purchase of the Company on mutually agreeable terms to shareholders, management, certain Franchisees and the Board. The Company has advised the management representatives that it will consider carefully credible proposals but the Board of Directors will continue to review alternatives to enhance the value of the Company. In the meantime, management of the Company has been restructured, creating the Office of the Chief Executive. Members of the Office of the Chief Executive consist of the Company's Chairman, Vice-Chairman and President. The Board of Directors is permitting the Company's President to devote a portion of his time to efforts to acquire the Company until such time as the Board of Directors advise otherwise. In a Schedule 13D, as amended, the Company was notified that certain members of management and certain members of Franchisees met on March 2 and 3, 1995, and evaluated the possibility of re-opening negotiations with the Investment Committee regarding the acquisition of all of the outstanding shares of the Company. Those persons stated that they determined to contact the Investment Committee regarding such negotiations and that they believed that if an agreement is to be reached regarding such a transaction, the price per share of common stock of the Company must be below the price of $18.50 per share previously discussed. As of March 24, 1995, the Investment Committee has not been approached by these persons. The Company has also been notified in two additional amended Schedule 13D filings, one of which was prepared by the Balboa Investment Group, L.P., a California limited partnership and Mr. Kenneth W. Pavia, Sr., the sole general partner of this partnership, collectively the "Balboa Group", and the other amended filing was prepared by those persons mentioned above, that the Balboa Group has entered into a confidentiality agreement with certain Company Franchisees who have expressed an interest in acquiring the Company. The amended filings indicate that the Company's Franchisees intend to discuss with the Balboa Group the possibility of acquiring the Company's common stock owned or controlled by the Balboa Group, contingent upon, among other things, the completion of the acquisition of the Company. Those talks would cover the possibility of selling the Balboa Group's common stock in the Company to certain of the Company's Franchisees. (a) (2) Information Required From Registrants on Form S-1 ------------------------------------------------- Not applicable. (b) Financial Information About Industry Segments --------------------------------------------- During the three years ended December 31, 1994, over ninety percent (90%) of the Company's revenues, operating profit and identifiable assets have been attributable to one industry segment, i.e., ownership, operation and franchising of Retail Stores and the related wholesale and retail marketing of tires and other automotive aftermarket products to or through such Retail Stores. During this same three year period, less than ten percent (10%) of the Company's revenues, operating profit and identifiable assets have been attributable to the Company's development of real estate sites for Retail Stores through its wholly-owned subsidiary, Big O Development, Inc. ("Development"), and one partnership. (c) Narrative Description of Business --------------------------------- The Company's principal business is franchising of Retail Stores and supplying these stores with tires and related automotive aftermarket products through the Company's RSCs. The Retail Stores are located primarily in the western United States as indicated on the chart on page 3. The Company also distributes its products to the 37 Canadian Licensees (see "Canadian Operations" on page 6). In March 1994, the Company became a member of Summit Tire and Battery, Inc. ("Summit"), an independently owned buying group based in Brandon, Florida. In certain parts of the country, Summit provides the Company 4 exclusive access to the Heritage line of passenger and light truck tires. The Heritage brand is manufactured by Kelly-Springfield. In June 1994, subject to certain Company established limitations for development activities, the Company formulated a real estate development program involving the sale of Retail Store sites to prospective Franchisees that qualify for Small Business Administration ("SBA") guaranteed loans. In certain instances, the Company may provide subordinated loans (as to collateral) not to exceed $50,000 for the prospective Franchisee to qualify for this SBA guaranteed funding. The Company anticipates that this financing will be repaid to the Company by the Franchisee, amortized monthly over five (5) years. Another component of the Company's real estate development program is site selection and development of the site. The Company anticipates that this construction financing will be repaid if the financing through the SBA guaranteed source is obtained by the prospective Franchisee. The Company has also assisted in obtaining financing for new Retail Store development with an unrelated third party financing company by providing debt guarantees for joint ventures. The Company also has provided lease guarantees to developers on behalf of Franchisees and straight debt financing for Retail Stores developed internally. In June 1994, the Company opened the RSC located in New Albany, Indiana, at a total cost of approximately $1,985,000. Change orders associated with the completion of this RSC totalled $73,000. In February 1995, the Company acquired the Las Vegas RSC at a total cost of approximately $7.7 million. At March 20, 1995, change orders associated with the completion of this RSC totalled approximately $300,000. The Las Vegas RSC opened on March 6, 1995. (i) Products, Services and Marketing. --------------------------------- Franchise Operations: --------------------- With respect to the Company's franchise operations, the primary products provided and services related thereto are described in the franchise agreement with each Franchisee (the "Franchise Agreement"). The Franchise Agreement essentially grants to the Franchisee a ten (10) year license to sell Big O brand tires and to use Company trademarks and trade secrets in the operation of a Retail Store at a specific location within a trade area defined in the Franchise Agreement. Franchisees are generally required to capitalize their business with $153,500 to $335,600 which covers the initial franchise fee, inventories, equipment, working capital, certain deposits and initial advertising costs. Initial franchise fees range between $7,000 to $21,000 depending on the Company's classification of the prospective Franchisee, as defined in the Franchise Agreement. In addition to the initial franchise fee, all Franchisees are required to pay monthly royalty fees of 2% of each Retail Store's prior month's gross sales, as defined in the Franchise Agreement. The Company offers a unique franchise program characterized by high standards, quality products and ongoing support designed to establish and grow successful Retail Stores. Most Franchisees are owner/operators, instead of passive investors. Management believes that a Franchisee's active involvement in the day-to-day operation of a Retail Store enhances its performance. The Company provides (i) training to the Franchisee and its supervisory personnel, (ii) assistance in store design and site and equipment selection, (iii) insurance programs, standardized manuals and computerized accounting systems, (iv) Big O brand and other approved tires and related automotive aftermarket products, and (v) continuing support with respect to operations, marketing, merchandising and new product introductions. The Company also promotes local advertising groups and regional accounting centers, which may be nonprofit corporations, cooperatives, mutual benefit corporations, or trusts designed to provide assistance to the Franchisees. The Company also provides certain materials, e.g., broadcast and print advertising materials, point of sale materials, a point of sale cash register system, equipment, uniforms and other wearables and services to each Franchisee at varying costs and assistance in obtaining financing through unaffiliated financing companies. 5 The Company has established and requires Franchisees to meet certain uniform guidelines for physical characteristics, inventories, efficiency, speed and courteous service. Each new Franchisee or manager is required to attend formal training covering sales, service, financial management, personnel, business ethics, legal compliance, merchandising and other management skills. In addition, Franchisees are to perform in accordance with written standards outlined in manuals provided pursuant to the Franchise Agreement. After the initial training requirements are met, the Company offers regional training classes to maintain and improve this expertise. The Company's growth depends to a large measure on its ability to attract, retain and maintain good relationships with suitable Franchisees. Any change in that relationship could cause existing Franchisees to purchase less merchandise from the Company and more from its competitors or to decline to renew their franchises upon expiration. Factors beyond the Company's control may adversely affect the Company's relationship with its Franchisees. In addition, there is no assurance that the Company will be able to continue to attract and retain suitable Franchisees. The Company also loses franchises from time to time due to financial and other problems of Franchisees. Accordingly, while a significant part of the Company's strategy is to increase the number of its franchised Retail Stores, there is no assurance that it will be able to do so. In 1994, one (1) Franchise Agreement expired and the Franchisee has reapplied for a new Franchise Agreement but has not yet been renewed. During 1995, six (6) Franchise Agreements are due to expire, and in 1996 three (3) Franchise Agreements are due to expire, with the remaining Franchise Agreements expiring in the eight years thereafter, including 107 Franchise Agreements which will expire in 1999. In 1994, the Company continued its development of a master franchise program whereby the Company intends to sell master franchises for specific areas where the master franchisee will be authorized to offer franchises for Retail Stores, be required to provide certain services in the specific area, and have the opportunity to function as a distributor of the Company's products. The Master Franchise Program will be used primarily to expand Retail Stores in areas of the eastern United States where the Company does not yet have established franchised stores and distribution, and possibly to expand internationally. As of March 24, 1995, the Company has not yet sold any master franchises. Canadian Operations: -------------------- Since 1962, certain Canadian retail tire stores within the Province of British Columbia, Canada, have been using the Company's tradename and previous versions of the Company's trademarks, logos and colors. As of March 24, 1995, 37 Canadian Licensees have signed user agreements for the Company's new trademark, logo and colors, and efforts continue to sign additional Canadian tire stores. While the Company has invited the Canadian Licensees to become Franchisees under the Company's franchise system, the Canadian Licensees have chosen to look to the Company only as a wholesale supplier. During 1994, the Company sold $72,000 in goods to 37 Canadian Licensees. The Company distributes to the Canadian Licensees through the Company's Boise, Idaho, RSC and through The Goodyear Tire & Rubber Company's British Columbia warehouse. Distribution: ------------- The Company distributes Big O branded passenger and light truck tires, other approved brands of tires and automotive aftermarket products and certain material and equipment used in the operation of Retail Stores. Retail Stores may stock and sell other tires and automotive aftermarket products which have been previously approved by the Company even though such products are not distributed by the Company. The Company does not manufacture any of the products it sells. During 1994, approximately 77% of the Big O branded tires were manufactured by Kelly-Springfield, with the remainder produced primarily by General. In July 1994, the Company and General terminated the May 1993 Marketing Agreement wherein General had agreed to supply Big O branded tires to the Company. The termination agreement also provides that General will continue to discharge its obligation to the Company and its Franchisees under a special warranty program until July 26, 1995. Thereafter, all subsequent adjustments will be subject to General's 6 then current warranty adjustment policy. General is continuing to provide and sell tires to Tire Marketers Association ("TMA"), a division of the Company that supplies tires to distributors predominantly based in the eastern United States. Prior to March 31, 1995, the Company anticipates closing on a $65,000 cash sale of the assets, trademarks and copyrights of TMA to an unrelated third party. TMA has been an operating division of the Company that markets non-Big O branded products to retailers outside the Big O system, and was acquired by the Company in June 1993. The proceeds from this sale will be used by the Company for general corporate purposes. In March 1994, the Company became a member of Summit, an independently owned buying group based in Brandon, Florida. This agreement provides that Summit will provide the Company exclusive access to the Heritage line of passenger and light truck tires. The Heritage brand is manufactured by Kelly-Springfield. In August 1991, the Company entered into a supply agreement with Kelly- Springfield for the manufacture and sale to the Company of Big O branded tires (the "Kelly Supply Agreement"). The term of the Kelly Supply Agreement is a calendar year, which is automatically renewed for the next calendar year unless either party elects to terminate upon three (3) months prior written notice. The Kelly Supply Agreement was automatically renewed for 1993, 1994 and 1995. Under the Kelly Supply Agreement, the Company is required to provide Kelly-Springfield with monthly non-binding estimates of the Company's tire requirements, by line and type, for the succeeding three months, and on August 1 of each year, an itemized non- binding forecast of the quantities of tires the Company will require during the next calendar year. As a result of entering into the Kelly Supply Agreement, the Company believes that it has adequate supply arrangements to meet anticipated demand, subject to industry wide shortages or disaster. However, the Kelly Supply Agreement only commits Kelly-Springfield to fill those portions of the Company's monthly orders that Kelly-Springfield agrees to fill. The obligation of Kelly-Springfield is also subject to circumstances causing delay that are outside of its reasonable control. Big O Brand Marketing Program: ------------------------------ In July 1994, the Company implemented its "Cost-U-Less/TM/" marketing program. This program provided, along with a marketing message of competitive pricing on all products and services, a reduction in the cost of Big O brand tires to the Company's Franchisees (without a similar reduction in cost from the Company's suppliers). This allowed the Franchisees to offer Big O brand products to retail customers at lower retail pricing which generally allowed the Franchisees to be more competitive in their markets. In order to differentiate the Company's products in a commodity market, all Big O brand tires are sold with a "Premium Tire Service Policy" and a "Limited Warranty for Free Replacement" (certain exceptions apply to non- recreational vehicle light truck tires). The Premium Tire Service Policy provides certain services and products free of charge, which are generally provided for as additional charges from other tire stores. These include free mounting and balancing of the new tires, free wheel weights and new rubber valve stems, free flat repair, free rotations and any necessary rebalancing throughout the tire's legal life. The Limited Warranty for Free Replacement provides "no charge for proration" (except for non-recreational light truck tires) and "no charge" for mounting and balancing the replacements of such tires that fail during the legal life of the tire tread due to workmanship, material defects or road hazards, without any limitation as to time and mileage. In July 1994, the Company authorized an 80,000 mile prorated warranty on the Premium Legacy Plus 70 Series, which is a Kelly-Springfield manufactured tire. It is anticipated that the financial impact to the Company will be minimal because the majority of the Retail Stores do not offer this particular mileage warranty. 7 The Company's suppliers have financial responsibility for workmanship and material defect claims during the first 2/32 of an inch of tread in the case of Kelly-Springfield supplied tires, and the first 10% of the tread life in the case of General supplied tires, with prorations to the Company thereafter. General has also increased reimbursement to the Company for certain workmanship and materials warranty adjustment returns. The Kelly Supply Agreement provides maximum limits on workmanship and material defects for which the Company will have any financial responsibility on each line and size of Big O branded products. The Company or the Retail Stores have financial responsibility for substantially all of the other costs associated with the Premium Tire Service Policy and Limited Warranty for Free Replacement programs beyond these prorations. The Company's sales by product in 1994 were as follows (in thousands):
% of Total Units Revenues Product Sales ----- -------- ------------- Big O brand tires..................... 1,410 $80,424 68% Other brand tires..................... 646 $26,472 22% Wheels, shocks and other accessories.. 1,338 $12,051 10%
The Company believes that a Franchisee's decision to purchase Big O brand products is based on several factors, including product profitability, knowledge of Big O products, services and programs, the level of product support provided by the Company, and the availability of products that meet the quality demands of the Retail Store's customers. The Company plans to meet these requirements and thereby increase sales of Big O brand products to Retail Stores by continuing to provide (i) a broad line of quality products that command higher margins for Retail Stores and that meet changing consumer demands, (ii) extensive training for store personnel, (iii) support of Retail Store operations, marketing, merchandising, and new product introductions, and (iv) upgraded product quality, particularly as measured by the industry's Uniform Tire Quality Grading Standards. Unit sales of Big O brand tires increased by 6.5% in 1994 as compared to 1993, following 1993's Big O brand unit sales decrease of 3.9% as compared to 1992. (ii) Status of Product or Segment. ----------------------------- The Company has made no announcement of, nor has the Company otherwise made public any information about any new product or industry segment requiring investment of a material amount of the Company's total assets or which is otherwise material to the Company's operations, other than its ongoing investment in new product lines to meet Retail Store needs, the Company's planned consolidation of some of its warehouse facilities, and a retail site development program by Development. (iii) Raw Materials. -------------- The Company does not manufacture any products. The Company orders Big O brand tires anywhere from 18 - 180 days before the beginning of the month in which they are produced. Manufacturers normally produce these tires and ship them directly to the appropriate RSCs thereby eliminating manufacturers' inventories of Big O brand product. Because of the lack of "safety stock," any unforecasted change in sales trends or interruptions in production schedules may result in inventory shortages. If the Company should lose Kelly-Springfield as a supplier at a time when there is sufficient production capacity within the tire manufacturing industry, management believes the Company could accomplish a rapid and orderly transition to new supplier(s). If, however, production capacity were limited, such as was experienced in 1988 and 1989, a change in suppliers could be extremely difficult and could cause the Company to again experience significant product shortages. 8 While the Company cannot completely assess the impact on its financial performance if an industry-wide shortage, labor strike or natural disaster should occur, such circumstances might result in higher costs, higher sales prices and possibly lower demand. In 1994, the Company received price increases from its suppliers of between 3% and 4% on tires and other products. In March 1995, the Company received an approximate 3% price increase. This increase in cost, over a sustained period, may be significant to the overall cost of sales and working capital requirements of the Company, particularly if costs increase and/or sales decrease. However, the tire industry in general, and the Company specifically, generally raise prices in response to such increases. As the cost of raw materials increases for all manufacturers, the resulting costs are passed through, in the form of higher prices, to the manufacturers' customers, i.e., distributors and retailers, such as the Company. Such distributors and retailers, in turn, increase their prices, and therefore the price increases are ultimately borne by the consumer. Because demand in the replacement tire market is viewed to be relatively inelastic, little disruption in demand has occurred due to these increases. Management believes that these increases will be borne proportionately throughout the industry, as the pricing formula used usually results in percentage margins which actually increase gross profit (dollars) for distributors and retailers. Gross profit percentages should continue to stay relatively constant as management does not expect such increases to adversely affect the Company's performance. Since price increases are initiated by manufacturers and are then subject to competitive pressures, the original announced increases are sometimes reduced. (iv) Patents, Trademarks, Licenses, and Franchises. ---------------------------------------------- At January 31, 1995, the Company had 374 franchised Retail Stores operating pursuant to Franchise Agreements. Please refer to "Products, Services and Marketing" above, for a further explanation of the Company's franchises and "Canadian Operations" above, for further explanation of the Canadian Licensees. The existence of the Franchise Agreements is of extreme importance to the Company since almost all of the Company's revenue is generated from sales to these Franchisees and from monthly royalty fees. The Company is the owner of various United States, Canadian and state trademark and service mark registrations and applications for marks used in connection with the Company's tires and tire retailing concepts. These trademarks and service marks include the Company's house mark, "Big O", and numerous secondary marks for individual products and advertising slogans. The Company is aware that a retail tire company operating "Big 10" outlets in Houston, Texas, and in areas of Alabama, Arkansas, Florida, Georgia, and Mississippi has raised issues regarding the Company's use of "Big O" in such areas. The Company does not currently have any Retail Stores operating in territories served by the other company and the matter does not affect the Company's ability to use the name "Big O" where currently used. When the Company begins franchising locations that overlap or are proximate to those served by the other company, it is possible that such company may contest usage of the Company's tradename and trademarks in such areas. The Company does not own any United States or foreign issued patents or pending patent applications. (v) Seasonality. ------------ The Retail Stores experience some seasonal variation in product sales because tire sales are generally greater during the summer than in the winter months. The Company generally experiences some seasonality, although not to the same extent that the Retail Stores do, as the Company maintains sales to certain Retail Stores, e.g., snow tires, that offset the trend on a national basis. 9 (vi) Working Capital Items. ---------------------- Of the Company's $3,926,000 in notes receivable at December 31, 1994, $1,432,000 relate to the sale of Company-owned Retail Stores to Franchisees. Another portion of these notes receivable relates to trade receivables that have been placed on notes as a financial strategy to maintain sales to financially limited, franchised Retail Stores which, at December 31, 1994, totaled $1,599,000. By placing these Retail Stores on level monthly payments, and with the development of a business plan for each such Retail Store, management is attempting to assist the Franchisees in reaching financial success while improving repayment options and timing. In 1994, the Company sold approximately $3 million of notes receivable to an unrelated third party and plans to sell additional notes in the future. The Company targets a 60-day inventory of Big O brand tires, and lesser inventory levels for other tires, wheels, and related automotive aftermarket products. Big O brand inventory levels are greater than those normally carried by tire distributors because of the limited availability due to production scheduling and lack of supplier floor stocks. At certain times, the Company has increased its Big O brand inventory due to anticipated shortages, potential strikes and minimum production runs required by suppliers. Subsequent to the Company's July 1994 implementation of the Company's Cost-U-Less/TM/ marketing program and the addition of several lines of Big O and other private branded tires, inventory needs increased by approximately $2.5 million. In lieu of obtaining extended payment terms generally provided by manufacturers, the Company has negotiated lower net pricing from suppliers. The Company periodically obtains extended payment terms on purchases while maintaining this lower net pricing. As a whole, the tire industry generally sells product on varying extended payment terms, up to and including 180 days. The standard credit terms extended by the Company to the Retail Stores are 3%/15, 2%/30, COD/31. Through arrangements with manufacturers regarding shocks and struts, the Company has arranged terms to encourage Retail Stores to stock sufficient quantities and varieties. These payment terms are more limited than the industry "norms" and are structured to reduce the Company's credit risk and working capital requirements. For certain items, primarily snow tires, the Company provides extended payment terms similar to those offered by wholesalers. As part of the Company's warranty and marketing programs, Retail Stores have the right to return certain merchandise to the RSCs for credit. The Company believes that its warranty program provides certain significant marketing advantages, but it also results in higher warranty expense to the Company than is normal in the industry. Some of this expense has been and will be offset by payments from manufacturers. The decrease in net warranty cost for 1994 primarily resulted from the establishment of certain programs negotiated with suppliers which continued to limit the Company's financial exposure for warranty claims, the elimination of the two product lines that created the greatest expense under the Company's warranty program in previous years, and the institution of a more stringent program for the review and verification of warranty claims for compliance with the terms and conditions of its warranty program. During 1994, management of the Company formulated a developmental program involving the sale of Retail Store sites to Franchisees that qualify for Small Business Administration guaranteed loans. In certain instances, the Company may provide subordinated loans (as to collateral) not to exceed $50,000, in order for the prospective Franchisees to qualify for this SBA guaranteed funding. The Company anticipates that this financing will be repaid to the Company by the Franchisee, amortized monthly over five (5) years. Another component of the Company's real estate development program is site selection and development of the site by Development. This has and will require significant financing by the Company, which is planned to be repaid if the financing through the SBA guaranteed source is obtained by the prospective Franchisee. At December 31, 1994, Development had $2,000,000 invested in acquisition and construction in progress for nine (9) sites, which was primarily financed by the sale of approximately $3 million of notes receivable, mentioned above. The Company anticipates that this real estate developmental program will result in an increase in the number of Retail Stores. As additional Retail Stores are added, additional working capital for accounts receivable, inventories, and certain real estate financing will be needed. Accounts receivable financing is anticipated to be supplied through the Company's existing credit facilities; 10 inventory growth will be financed partially by the Company's suppliers and partially through the Company's existing credit facilities; and real estate financing will be provided by a combination of the Company's revolving line of credit and limited permanent (term) financing. (vii) Customer Dependence. -------------------- Since the Company primarily sells its products to 374 Franchisees and 37 Canadian Licensees, its customer group is very limited. Of this customer group, the Company does not depend upon a single customer, or a limited number of customers, for its revenues, the loss of any one or more of which would have a material adverse effect on the Company. However, certain Franchisees (and Franchisee groups) continue their individual growth and are becoming more significant customers. Approximately 33% of the Company's sales were made to Retail Stores located in the State of California (which includes sales made to the Company's largest Franchisee who is affiliated with thirty-one (31) Retail Stores) which constitutes about 38% of the Retail Stores. As a result, a high portion of the Company's receivables and credit risks are concentrated in California with the result that adverse conditions or adverse publicity affecting retail operations in California could more significantly affect the operating results of the Company than if the stores were more geographically diversified. In addition, at December 31, 1994, receivables and financial guarantees totaling $4,179,000 were associated with five (5) Franchisees who own and operate multiple Big O Retail Stores. Adverse financial results with these Franchisees could adversely affect the Company more significantly than if the credit risks were less concentrated. (viii) Backlog of Orders. ------------------ At March 24, 1995 and March 25, 1994, there were no material backlogs of orders. Any sustained backlog the Company experiences with its suppliers creates a backlog in fulfilling orders from the Retail Stores and Canadian Licensees. (ix) Government Contracts. --------------------- The Company is not involved with any contracts or subcontracts with the government which may allow for the renegotiation of profits or the termination of such contracts at the election of the government. (x) Competition. ------------ Since the Company is primarily a distributor to its Retail Stores and the Canadian Licensees, its success depends on the retail success of its Franchisees and Canadian Licensees. Both the tire aftermarket and under- car service businesses are highly competitive. Through the Retail Stores and Canadian Licensees, the Company competes with major tire manufacturers who have retail tire stores, national and regional tire chains, traditional department stores, independent merchants, and general, full range, discount and warehouse club stores. Many of the Company's competitors are larger in terms of sales volume, have access to greater capital and management resources, and have been operating longer in particular geographic areas. Management believes that price competition in the geographical markets served by the Company continues to intensify. Retail competition comes in the form of price, service, warranty, product performance, product innovation, or differing variations of each of these issues. Although competition varies by geographic area, the Company believes that it generally has a favorable competitive position in terms of price, product line, value, merchandising, warranty and customer service. With the implementation of the Company's Cost-U-Less/TM/ program on its Big O brand products, which include the Premium Tire Service Policy and the Limited Warranty for Free Replacement, the Company believes that these three marketing facets are equal to or exceed any such programs offered by its competitors. Franchise sales are also highly competitive as the Company competes with other franchisors, some of which are larger, have better name recognition and access to larger capital resources and have been operating 11 longer than the Company. Management believes that the competition for the sale of franchises has increased and will intensify due, in part, to the entry of new franchisors and the growth of existing franchisors. The competitive conditions for real estate development differ substantially from those the Company faces in the retail tire and franchise markets. The success of the Company's real estate development lies in obtaining sites that can be developed into store facilities that meet Franchisees' requirements at reasonable rental rates or sales prices. Since the prime customers for the Company's real estate development are its Franchisees, development of real estate can affect the growth of Retail Stores. Competition for real estate development comes from many sources, including other retail tire companies, other franchisors, e.g., fast food restaurants and gas stations, and other retailers. (xi) Research and Development. ------------------------- The Company does not engage in any significant research and development activities, and no material amount was spent by the Company on research and development activities. (xii) Environmental Regulations. -------------------------- The Company is subject to the ever expanding purview of federal, state and local environmental laws relating to spillage, noise, air quality and disposal of waste products. The Company believes it is in general compliance with all applicable environmental laws and has adopted a policy of requiring Phase I environmental studies associated with any new projects or the acquisition of any existing locations before such transactions are consummated. The Company is not aware of any requirements to develop environmental control facilities and has not made any material capital expenditures for such facilities and does not anticipate doing so at this time. The Company has periodically been involved with minor clean-ups associated with certain Retail Stores in which the Company has been a tenant or subtenant. Generally, the costs of these clean-ups have not been material. Many states have enacted specific tire disposal laws that, among other requirements, assess fees for each tire disposed and designate specific locations for tire disposal. This impacts the Company, its Franchisees and the retail customers as such costs are usually passed on to the customers. (xiii) Employees. ---------- At March 24, 1995, the Company employed 211 persons on a full-time basis and 39 persons on a part-time basis. (d) Financial Information About Foreign and Domestic Operations and Export ---------------------------------------------------------------------- Sales ----- Sales to Canadian Licensees totaled $72,000, $994,000 and $1,708,000, which resulted in gross profits of $8,000, $97,000 and $169,000 in 1994, 1993 and 1992, respectively. In 1994, the Company negotiated sales of its Big O branded product to be distributed through a subsidiary of The Goodyear Tire & Rubber Company. As a result of this negotiation, the Company no longer recognizes sales to its Canadian Licensees. The Company has not maintained any identifiable assets in Canada. 12 Item 2. PROPERTIES ------------------ Mortgage Amount # of Stores Square Owned/ (if any) at Serves Description/Location Footage Leased 3/17/95 at 3/17/95 ------------------------------------------------------------------------------------- Vacaville, California Warehouse(1)(8) 116,000 Owned $ - 0 - Ontario, California RSC(7) 141,900 Leased $ - 0 - 194 Denver, Colorado RSC and Corporate Offices(5)(6) 116,100 Leased $ - 0 - Boise, Idaho RSC(2)(8) 100,000 Owned $ - 0 - 122(3) New Albany, Indiana RSC(4) 80,000 Owned $1,450,000 42 Las Vegas, Nevada RSC(8) 294,000 Owned $ - 0 - 59
(1) The Company also owns, in fee simple, approximately five acres of land immediately adjacent to this property. In June 1994, the Company leased the entire warehouse until the year 2000. When the Vacaville warehouse space was fully leased to an unrelated third party, the Ontario, California, RSC began servicing the Retail Stores in the Western region. (2) The Company owns, in fee simple, approximately seven acres of land immediately adjacent to this RSC, which can be used for expansion. (3) Includes distribution to 37 Canadian Licensees. (4) The New Albany, Indiana, RSC was completed in June 1994. This facility is servicing the Retail Stores which were being serviced by the Kentucky and Sellersburg, Indiana, warehouses. The cost of land acquisition and construction of this facility was $1,985,000. (5) This RSC will be replaced by the single warehouse facility located near Las Vegas, Nevada, which opened on March 6, 1995. The Las Vegas RSC contains approximately 294,000 square feet of warehouse space and 6,000 square feet of office space, and it will service the Retail Stores which have been serviced by the Denver, Ontario and Vacaville RSCs. (6) In anticipation of the opening of the Las Vegas RSC, the Company sold its Denver RSC to an unrelated third party in December 1994. This sale was consummated with a $242,000 down payment, certain rent concessions, and the assumption of the Company's promissory note and mortgage on the facility from the existing mortgage. The Company remains obligated on this mortgage in the event that the purchaser defaults. (7) The Company anticipates that the Ontario RSC operations will be fully converted to the Las Vegas RSC by May 1995. The Company is obligated under the lease for the Ontario warehouse until June 24, 1998. This warehouse space is currently being marketed for lease. (8) The Vacaville California, Boise, Idaho and Las Vegas, Nevada, properties are all collateral for $8 million of senior, secured notes sold by the Company in April 1994. The proceeds from these notes were used to pay the previous mortgage on the Boise, Idaho RSC, a term loan with the previous primary lender, and the balance (approximately $4.2 million) was placed in a restricted cash account for the purpose of providing financing for the acquisition of the Las Vegas RSC. The Company also has a lease for a 35,000 square foot warehouse and general office space in Santa Ana, California, which was assigned to a joint venture in which a subsidiary of the Company was a 50% joint venture partner. The initial term of this lease expires in October 1996. In 1993, the subsidiary of the Company agreed to sell its 50% interest in the joint venture to the other joint venturer which assumed all obligations under this lease through the 1996 termination of the initial term of the lease. Thus the Company will remain contingently liable for this lease obligation through October 1996. 13 As of March 14, 1995, the Company is also responsible for leases on approximately sixty-one (61) Retail Store locations, of which thirty-four (34) locations are subleased to Franchisees, six (6) locations are operated as Company owned or joint venture Retail Stores and the leases for sixteen (16) Retail Stores are guaranteed by the Company. The Company, in accordance with lease guaranty provisions, is also responsible for the lease obligations on five (5) closed Retail Store locations. In addition, the Company owns five (5) Retail Store locations which are leased directly to Franchisees. Item 3. LEGAL PROCEEDINGS -------------------------- As of March 24, 1995, the Company has been named as a defendant in approximately twenty-seven (27) pending lawsuits which are incidental to its business and which the Company believes will be subject to indemnification and/or covered by insurance if the Company is held liable, and eight (8) lawsuits which are incidental to its business and for which the Company does not believe it is liable, but which are not covered by insurance. The Company believes that the ultimate outcome of these matters will not have a material adverse effect on its financial statements. In December 1994, the Company and its nine directors were named in two proposed stockholder class action lawsuits (Knopf vs. Big O Tires, Inc. and Zucker vs. Big O Tires, Inc., Second Judicial District Court of the State of Nevada, County of Washoe) each similarly requesting the court to enjoin the sale of the Company to a Dealer-Management Group, enjoin the implementation of the recently adopted shareholder rights plan, obtain specified damages, require the disclosure of the Company's internal forecasts and award plaintiffs' their attorneys' fees and costs, including experts fees. The lawsuits also request that the court order the directors to carry out their fiduciary duties to the plaintiffs and the other members of the class by announcing their intention to cooperate and do all that is necessary to encourage the buyout or takeover of the Company by enhancing the Company's attractiveness as a merger/acquisition candidate, effectively exposing the Company to the marketplace in an effort to create an active action of the Company, act independently and resolve all conflicts of interest in the best interests of the class. If the contemplated transaction with the Dealer-Management Group is consummated, the court is asked to rescind the transaction and, among other actions, award rescissionary damages. The Company moved to dismiss both lawsuits, which have been consolidated, as being frivolous and not in the interests of the stockholders as a class. Counsel for the plaintiffs have filed a motion to dismiss both lawsuits without prejudice. As of March 24, 1995, the Company has not received notice that these dismissals have occurred. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ------------------------------------------------------------ During the fourth quarter of 1994, the Company did not submit any matters to a vote of the security holders. 14 PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ------------------------------------------------------------------------------ (a) Market Information The Company's Common Stock is reported on the NASDAQ National Market System. The principal market for the stock is the over-the-counter market. The quotations in the table below were obtained from NASDAQ and reflect high and low bid prices of the Company's Common Stock. The prices reflect inter- dealer prices without retail mark-up, mark-down or commission. The prices have been rounded to the nearest eighth and may not necessarily represent actual transactions.
Period High Low ------ ------ ------ 01/01/93--03/31/93 14 1/4 11 1/8 04/01/93--06/30/93 16 3/8 10 7/8 07/01/93--09/30/93 17 1/4 13 1/4 10/01/93--12/31/93 16 1/2 13 1/2 01/01/94--03/31/94 16 3/4 12 3/4 04/01/94--06/30/94 16 3/4 13 1/8 07/01/94--09/30/94 16 3/4 14 1/2 10/01/94--12/31/94 17 7/8 15 1/4
________________ (b) Holders As of March 24, 1995 the Company had 707 shareholders of record as indicated on the Company's transfer records. (c) Dividends The Company has not declared cash dividends on its Common Stock during the last two fiscal years and there is no present intent to pay a cash dividend. Certain covenants contained in the credit agreements with the Company's primary lender preclude the general declaration or payment of cash dividends and preclude the general purchase, redemption, retirement or other acquisition of the Company's capital stock, or the return of capital or distribution of assets to its shareholders, without the prior written consent of the lender. 15 Item 6. SELECTED FINANCIAL DATA ------------------------------- The following table presents selected financial data concerning the Company, which should be read in conjunction with the financial statements appearing elsewhere herein. Amounts are in thousands (000's) except per share data. For the Years Ended December 31 -----------------------------------
1994 1993 1992 1991 1990 -------- -------- --------- --------- --------- Sales $127,678 $122,960 $119,799 $113,836 $106,902 Net income 2,691 1,595 2,783 1,751 707 Earnings per share/(1)/ .80 .47 .80 .50 .20 Cash dividends per share .00 .00 .00 .00 .00 For the Years Ended December 31 ---------------------------------- 1994 1993 1992 1991 1990 -------- -------- -------- -------- -------- Working Capital $ 24,667 $ 11,885 $ 17,333 $ 20,661 $ 16,495 Total assets/(2)/ 61,968 56,607 57,679 57,111 63,176 Non-current portion of long-term debt, obligations under capital leases and guarantee of ESOP obligation 16,355 12,012 10,636 16,305 11,883
/(1)/ Adjusted to reflect the 1 for 5 reverse split of the Company's $0.10 par value common stock that was effective June 15, 1992. /(2)/ Total assets for years prior to 1992 have been restated to reflect the reclassification of vendor receivables to accounts payable. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND ------------------------------------------------------------------------ RESULTS OF OPERATIONS --------------------- RESULTS OF OPERATIONS: 1994 COMPARED TO 1993 Net Sales. Net sales consist principally of product, equipment and service sales, initial franchise fees and royalty fees. Net sales in 1994 were $127,678,000 which represented an increase of $4,718,000 (or 3.8%) over 1993. This increase in sales was primarily due to higher sales of Big O brand tires which resulted from the Company's "Cost-U-Less" marketing program that was implemented on July 1, 1994. This program provided a significant reduction in the cost of Big O brand tires to the Company's Franchisees (without a similar reduction in cost from the Company's suppliers). This allowed the Franchisees to offer Big O brand products to their customers at lower retail pricing which generally allowed the Franchisees to be more price competitive in their markets. The improvement in product mix is particularly significant since the sale of Big O brand tires provides higher gross margins as compared to the Company's other tire products and represented 69.8% of the Company's total product sales for the last six months of 1994, an increase of 5.0% as compared to the first six months of 1994. 16 Wholesale sales of Big O brand tires increased by approximately 85,800 units (6.5%) in 1994; based on this increase and an increase in the average selling price of $.10 per unit or .2%, revenues increased by $5,027,000 in 1994. The sale of other new tires increased by approximately 9,300 units or 1.5% as compared to 1993. The sale of wheels, shocks, and other accessories also increased by approximately 3,600 units or .3% which, along with an increase in the average selling price of $1.06, increased revenues by $1,454,000 in 1994. These wholesale sales increases were partially offset by a reduction of $2,137,000 in retail sales at Company-owned Retail Stores. During 1994, the Company continued its efforts to improve the operations of its existing Retail Stores and add new stores to its distribution system. During the year, 26 new Retail Stores were added, but 18 existing Retail Stores were closed. Accordingly, sales to new franchised Retail Stores increased by $5,342,000, sales to existing franchised retail stores increased by $4,129,000, and higher retail sales generated a $658,000 increase in royalty fees. Offsetting these sales increases were reductions in sales of $2,137,000 at Company-owned Retail Stores, $1,225,000 from the closure of nine (9) franchised Retail Stores, $922,000 from decreased sales to the Canadian licensees, and $1,080,000 from a decrease in other wholesale sales. The Company also receives royalties from the Extra Care service program at Retail Stores which consists of alignment, brake work, front-end repair, shock absorber and strut replacement, lubrication and oil changes. Extra Care service program royalty fees in 1994 were $1,976,000, up $190,000 or 10.6% from 1993. While these fees continued to increase, they are growing at a slower rate as the Company continues to focus its marketing efforts towards tire sales and, specifically, Big O brand tire sales through its "Cost-U-Less" marketing program. The Company's revenues are primarily dependent on sales to its network of Retail Stores. The continuation of these franchises during the ten year term of each Franchise Agreement is extremely important to the Company as is the renewal of these franchises upon their expiration period. In 1994, one (1) Franchise Agreement expired and has reapplied for a new Franchise Agreement, but has not yet been renewed. During 1995, six (6) Franchise Agreements will expire. In 1996, three (3) Franchise Agreements are due to expire, with the remaining Franchise Agreements expiring in the years thereafter. The Company's Franchisees are independent business operators who are entitled to establish their own policies within certain guidelines established by the Company and who are directly responsible for supervision of their employees. Of the 374 franchised Retail Stores at December 31, 1994, thirteen (13) are owned by partnerships in which a subsidiary of the Company owns a 50% interest but has no managerial control over day-to-day operations. The Company prescribes certain operating procedures in business and ethical standards; however, Franchisees are responsible for complying with these procedures and standards as well as all applicable laws and regulations. Gross Profit. Cost of goods sold consists primarily of the cost of products and equipment sold and the cost of labor to deliver services at Company-owned Retail Stores. Gross profit in 1994 was $30,131,000, an increase of $2,500,000 or 9.0% over 1993. Gross profit increased $1,113,000 due to increased sales volumes, and increased $1,387,000 due to the 1.1% increase in gross margin. Also contributing to this 1.1% increase in gross margin was an increase in continuing royalties, additional cash discounts earned, and increased profits associated with price changes. Partially offsetting these increases were additional purchasing incentives provided to Franchisees and a decrease in promotional funds provided by the Company's suppliers. The gross margin was 23.6% in 1994 as compared to 22.5% in 1993. An increase of .8% in the gross margin was attributable to the increase in sales of Big O brand tires which carry higher gross margins than other tire products. Warranty adjustment expense decreased by 3.2% in 1994 to $4,709,000. The product quality produced by the Company's present supplier has continued to reduce the Company's financial exposure for warranty claims. In addition, products that have shown excessive adjustments have been discontinued and on- hand inventories have been returned to suppliers for liquidation outside existing market areas or distribution channels. The Company has also continued its stringent program for the review and verification of warranty claims for compliance with the terms and conditions of its warranty program. 17 In 1994, the Company limited its exposure to foreign exchange gains and losses by renegotiating the distribution channel of product sold to its Canadian Licensees. Since this arrangement resulted in an override paid by the supplier on such sales, sales for the Company were reduced, although gross profits on such sales remained essentially the same and profitability increased as a result of the reduced foreign exchange expenses. Net Expenses. Net expenses increased by $1,139,000 or 4.7% to $25,490,000 in 1994. An increase in net expenses of $674,000 was associated with the implementation of the shareholder proposal, and increased expenses of $677,000 resulted from losses on the sale or closure of Retail Stores. Net expenses also increased by $614,000 in product delivery expense which primarily resulted from the additional freight costs associated with the Company's consolidation of its warehouse operations in California, $784,000 which resulted from increased promotional expense in connection with the Company's new marketing program, and $824,000 which resulted from the operation of Company-owned Retail Stores. However, these increases were partially offset by a decrease of $1,927,000 in expenses related to Company-owned Retail Stores which were sold, and a reduction of $149,000 in the provision for uncollectible receivables. Net expenses (excluding offering costs, warehouse consolidation costs, shareholder proposal expense, and losses on sale or closure of Retail Stores) ("Operating Expense") in 1994 were 18.6% of net sales, down slightly from 18.7% in 1993. The Company anticipates that Operating Expense in 1995 will decrease as a result of a restructuring plan which was adopted in February 1995 and the consolidation of the Colorado and California warehouse operations into a new distribution facility near Las Vegas, Nevada, which began operations in March 1995. This planned decrease in Operating Expense, when combined with anticipated sales increases, is expected to result in a lower Operating Expense as a percentage of sales for the last six months in 1995. However, increased ownership of Retail Stores may add significantly to the growth of Operating Expense as each store can add as much as $600,000 of Operating Expense annually. While the Company's current strategic plan does not contemplate the operation of additional Company-owned Retail Stores, beyond the four Retail Stores presently in operation, the Company recognizes that it will generally operate some Company-owned Retail Stores until such stores can be sold to Franchisees. In most cases, it is beneficial for the Company to continue to operate a store, even if reacquired from a Franchisee due to financial failure, in an effort to maintain market presence and thereby allow the store to be resold to a Franchisee as opportunities arise. In 1994, five (5) Company-owned Retail Stores were sold to Franchisees which resulted in a pretax loss of $117,000. The Company's primary growth strategy is to accelerate growth in the number of franchised Retail Stores. This will cause expenditures for advertising, locating, and developing new franchised locations to increase at a rate faster than overall sales increases. However, the Company believes that development of these new stores, especially based on its relatively fixed overhead structure, could increase profitability and margins as these fixed costs (which are planned to be reduced by the Company's restructuring plan and the warehouse consolidation project) are spread over more units sold due to increased outlets. To the extent that new store openings do not materialize, these additional expenses may reduce overall profitability and reduce the Company's return on assets. Interest expense increased by 20.2% in 1994 to $1,465,000. Although interest expense decreased due to reduced borrowings resulting from lower working capital requirements, this reduction was offset by an increase in interest expense attributable to an increase in the "prime" rate and, therefore, in the Company's borrowing rate, and the sale of 8.71% Senior Secured Notes in the aggregate principal amount of $8,000,000 in April 1994. 1993 COMPARED TO 1992 Net Sales. Net sales in 1993 increased by $3,161,000 or 2.6% over 1992 to $122,960,000 primarily due to higher sales from a line of private brand, price point tire products which were introduced in late 1992. Big O brand unit sales decreased by approximately 53,800 units or 3.9% while the average selling price increased by $1.13 per unit or 2.0%. The sale of other new tires increased by approximately 115,200 units or 22.1% which increased revenues by $4,026,000. The increase in net sales included $5,854,000 attributable to increased sales to new franchised Retail Stores, increased sales at Company-owned Retail Stores of $2,482,000, and $258,000 from increased royalty fees. These sales increases were partially offset by a reduction in sales of $871,000 due to the sale or closure of 18 Company-owned Retail Stores, $1,676,000 from the closure of franchised Retail Stores, and $1,675,000 from a decrease in sales to existing Franchisees. Sales of product to 37 unaffiliated retail stores in Canada (the "Canadian Licensees") also decreased by $698,000 in 1993 as compared to 1992 due to adverse changes in the foreign currency exchange rates which resulted in higher pricing. Royalties from the Extra Care service program in 1993 were $1,786,000, up $24,000 or 1.4% from 1992. Sales of ProComp wheels totalled $2,533,000 in 1993 which represented an increase of $205,000 or 8.8% from 1992, which resulted from the Company's success in reducing inventories of slow moving styles and increasing sales by concentrating its efforts in building sales in the faster moving lines. Gross Profit. Gross profit in 1993 decreased by $18,000 or 0.1% from 1992 to $27,631,000, primarily due to a reduction of 0.6% in gross margin which was partially offset by increased sales volumes. Also contributing to the decrease in gross profit were additional reserves for product obsolescence, decreased profits associated with price changes, and an increase in freight costs. Partially offsetting these decreases were improved profits associated with a significant decrease in the Company's warranty adjustment expense, increased royalty income, additional cash discounts earned, and increased promotional funds provided by the Company's suppliers. Gross Margin was 22.5% in 1993 as compared to 23.1% in 1992. A decrease of 0.3% in the gross margin was attributable to the decrease in sales of Big O brand tires, and the gross margin was reduced by an additional 0.3% from increased sales of a line of price-point tire products which carry significantly lower margins as compared to the Big O brand products. However, the decrease in gross margin was partially offset by a decrease of 7.8% in warranty adjustment expense in 1993 to $4,565,000. Net Expenses. Operating Expense increased by $151,000 or 0.7% to $23,034,000 in 1993, primarily due to an increase of $2,284,000 in Operating Expense incurred by the operation of eleven (11) Company-owned Retail Stores in 1993 as compared to seven (7) stores in 1992. Operating Expense also increased by $193,000 as a result of losses incurred by the Company's joint venture operations and the losses of subsidiaries, $635,000 as a result of increased franchise development costs and $132,000 as a result of additional expense associated with the operation of the Franchisee training center. Operating Expense decreased by $887,000 due to reduced promotional expenses, $689,000 from a reduction in the provision for uncollectible receivables, $429,000 from reduced compensation and $178,000 from reduced amortization of intangibles. Operating Expense in 1993 was 18.7% of net sales as compared to 19.1% in 1992. Interest expense increased by 4.2% in 1993 to $1,219,000. Although interest expense decreased due to reduced borrowings resulting from lower working capital requirements and a reduction in the Company's borrowing rate, this reduction was offset by an increase in interest expense attributable to the $6 million supplier note used to finance most of the General stock and warrant repurchase. In 1993, the Company withdrew its registration statement for the sale of 1,300,000 shares of the Company's $.10 par value common stock which resulted in an expense of $281,000 for the offering costs associated with the registration statement. In addition, the Company adopted a plan in 1993 to consolidate three of its RSCs into a single facility located in Nevada and recorded an expense of $607,000 which represented the net amount of the estimated facility relocation costs, employee compensation expenses, gain (or loss) on disposal of assets, and other related expenses associated with the consolidation plan. The Company also adopted Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, as of January 1, 1993 which decreased net income by $285,000 for the cumulative effect of this change in accounting principle. LIQUIDITY AND CAPITAL RESOURCES Shareholder Proposal. In June 1994, the shareholders adopted a proposal requesting the Board of Directors to engage an investment banker to evaluate all alternatives to enhance the value of the Company. In implementing this shareholder proposal, the Board of Directors established the Investment Committee of the Board who retained PaineWebber Incorporated (PaineWebber) to fulfill this shareholder proposal. 19 The result of this process has led to two offers to acquire the Company, neither of which has been successful as of March 15, 1995. However, an offer for the Company may be received in the future and, if accepted by the shareholders, could result in a significant change in the Company's liquidity and need for capital resources. In the meantime, management of the Company has been restructured, creating the Office of the Chief Executive. The purpose of this restructuring is to achieve aggressive growth and to enhance the value of the Company. As these strategies are currently being developed, their impact on the liquidity and capital resources of the Company has not been determined. However, management of the Company is aware of the limited capital resources available and will act prudently and conservatively in establishing and implementing growth plans and operating strategies. Working Capital. The Company's working capital (defined as current assets less current liabilities) more than doubled in 1994, increasing to $24.7 million at December 31, 1994, versus $11.9 million in working capital at December 31, 1993. Sources of working capital included earnings, payments on and sales of notes receivable, sales of property and equipment, and the issuance of long term debt. Uses of working capital included purchases of property and equipment and principal payments on long term debt. Significant changes in the components of working capital consisted of the following: i. Trade accounts receivable increased by $1.15 million primarily due to the addition of franchised Retail Stores, an increase in sales resulting from the success of the Cost-U-Less marketing program and a reduction in the allowance for doubtful accounts. ii. Inventories increased by approximately $2.5 million as a result of additional inventory needs resulting from increased sales associated with the Cost-U-Less marketing program and the addition of several lines of Big O and other private branded tire lines. iii. Accounts payable decreased by approximately $3 million primarily because of differences in credit terms and pricing from the current principal supplier as compared to those offered by the previous principal supplier. To take advantage of cash discounts offered by the new supplier, the Company accelerated payments of invoices. The Company anticipates that it will meet its working capital needs in 1995 through the internal generation of funds from operations and from financing available from its new primary lender (See Existing Credit Facilities). The Company has embarked on a significant real estate development program that is planned to result in an increase in the number of Retail Stores (See Real Estate Development). As additional Retail Stores are added, additional working capital for accounts receivable, inventories, and certain real estate financing will be needed. Accounts receivable financing is anticipated to be supplied through the Company's existing credit facilities; inventory growth will be financed partially by the Company's suppliers and partially through the Company's existing credit facilities; and real estate financing will be provided by a combination of the Company's revolving line of credit and limited permanent (term) financing. The Company significantly reduced the amount of accounts receivable transferred to long term notes receivable during 1994. The Company has established a successful program for the transfer of such receivables, although this transfer limits the Company's access to cash that would have been generated from earlier collection of these receivables. The Company was successful in selling approximately $3 million of notes receivable in 1994 and plans to sell additional notes in the future. Real Estate Development. In the Company's ongoing effort to significantly increase the number of Retail Stores, the Company has continually been called upon to guarantee certain leases for prospective Franchisees at new locations. Management has been adverse to providing these guarantees primarily due to the significant financial impact on the Company when these guarantees are enforced. (For example, of the $1,106,000 loss on sale or closure of Retail Stores incurred in 1994, $881,000 related to the remaining lease obligations for certain leases involving the Company.) 20 The Company previously developed Retail Store sites by use of real estate joint ventures, wherein the Company would provide the tenant (prospective Franchisee) and the developer would provide the site locations and develop the real estate. While this arrangement resulted in most of the debt not being included on the Company's balance sheet, the Company was still contingently obligated on these development loans. In an effort to significantly reduce the lease guarantee requirements or retention of these assets and liabilities, management formulated a developmental program involving the sale of Retail Store sites to Franchisees that qualify for Small Business Administration (SBA) guaranteed loans. In certain instances, the Company may provide a small loan (not to exceed $50,000) as subordinated debt in order for the Franchisee to qualify for this SBA guaranteed funding. The key component of this developmental program is site selection by the Company and development of the site by one of the Company's subsidiaries. This has and will require significant financing by the Company, which is planned to be repaid if the financing through the SBA guaranteed source is obtained by the prospective Franchisee. At December 31, 1994, the Company's subsidiary had $2 million invested in construction in progress for nine (9) sites, which was primarily financed by the sale of approximately $3 million of notes receivable. This program carries considerable developmental risk as the Company will be required to hold these assets, and related liabilities, if the properties cannot be sold. The Company has secured construction and permanent financing commitments for this development as detailed under Existing Credit Facilities. Existing Retail Store real estate and developmental sites may be sold to third parties. Management will attempt to sell these without any lease guarantees. In approving this developmental program, the Board of Directors established certain financial limitations for development activities. Accordingly, future development will only be allowed to the extent that funding can be obtained, developed Retail Store sites have been sold, and the criteria established by the Board of Directors is met. Existing Credit Facilities. The Company's current operations are funded through its revolving line of credit with a new primary lender - The First National Bank of Chicago (First Chicago). First Chicago provided a $20 million revolving credit line which was used to pay off the previous credit facility in January 1995. The First Chicago credit line has a 1995 sub-limit of $6 million which can be used for construction and permanent financing pursuant to the real estate development program described above. Limited financing for the Company's real estate and retail store joint venture operations is provided by AT&T Capital Corporation (AT&T). Previously, two credit facilities were offered by AT&T to meet each of these two developmental needs. However, AT&T renewed this financing by providing one revolving credit line totalling $11.75 million which can be used for both purposes. Prepayments under this credit line associated with real estate development activities are required during the first three years of such financing, unless an SBA guaranteed loan is placed with AT&T's Small Business Lending unit. At December 31, 1994, $5.3 million was outstanding under this AT&T facility. $412,000 was included as a liability on the Company's books, with the remainder being an off balance sheet liability related to financing provided to joint ventures of the Company which had been guaranteed by the Company and its joint venture partners. In April 1994, the Company successfully sold $8 million of senior, secured notes providing for quarterly interest only payments through July 1998 and then equal principal payments of $333,000, plus interest, per quarter with the unpaid balance due May 2004. The proceeds from these notes were used to pay the previous mortgage on the Boise, Idaho RSC, the term loan with the previous primary lender, and the balance (approximately $4.2 million) was placed in a restricted cash account for the purpose of providing financing for the acquisition of the Las Vegas, Nevada RSC (Las Vegas RSC) in early 1995. Financing for the Indiana RSC was converted from the construction loan into a permanent loan in 1994. This loan amortizes over 7 years with such amortization starting October 1994. In 1993 the Company borrowed $6 million from Kelly-Springfield to finance the acquisition and retirement of 400,000 shares of the Company's common stock and certain warrants from General. The loan was renegotiated 21 in September 1994, eliminating the balloon payment due in August 1995 and extending the note through November 1997 based on scheduled principal payments. Management's discretion with respect to certain business matters is limited by financial and other covenants contained in loan agreements with First Chicago, AT&T, the senior note holders, and Kelly-Springfield. These covenants, among other things, limit or prohibit the Company from (i) paying dividends on its capital stock, (ii) incurring additional indebtedness, (iii) creating liens on or selling certain assets, (iv) making certain loans, investments, or guarantees, (v) violating certain financial ratios (vi) repurchasing shares of its common stock, and (vii) making certain capital expenditures. At December 31, 1994, the Company was either in compliance with all of these covenants or had received waivers from the appropriate lender. Advances from First Chicago are limited to a portion of eligible collateral as defined in the Revolving Credit Agreement and are further reduced by the amount of any outstanding letters of credit issued on behalf of the Company. This credit facility extends through January 23, 1998. The Company anticipates that short term cash needs can be met through this credit facility. As noted above, limited Retail Store development costs can be met, on a short term basis, for acquisition, construction, and renovation costs. However, financing through this facility for both real estate development and operations will be subject to the formula borrowing base and the above-mentioned covenant limitations. Financing beyond these needs, principally for capital expenditures, will need to be obtained through other credit facilities. Proposed Financing. The Company is currently working on the following three financing proposals: i. Management is negotiating for the sale of additional promissory notes receivable. It is presently anticipated that an additional $1 million of these notes may be sold in 1995. ii. In conjunction with the conversion to the Las Vegas RSC, management is evaluating whether to acquire or lease certain equipment, computer hardware, and computer software. iii. Management is also seeking to secure additional permanent real estate financing in the event that the SBA guaranteed financing, described in Real Estate Development, is not obtained by the prospective Franchisee. Currently, real estate development activities will be limited to the extent that permanent financing can be provided by First Chicago or AT&T. Financial Commitments. The Company has provided financial guarantees to third party lenders, equipment lessors, and other sources of financing provided to certain franchised Retail Stores which, at December 31, 1994, approximated $4.7 million and at December 31, 1993 approximated $2.4 million. In conjunction with the sale of the notes receivable in the amount of approximately $3 million, the Company guaranteed 50% of such notes based on the balance outstanding for these notes at December 31 of the previous fiscal year. At December 31, 1994, this amounted to an additional $1.5 million. Lease guarantees provided to landlords by the Company amounted to approximately $4.8 million at December 31, 1994. In November 1993, the Company guaranteed a promissory note on behalf of the Big O Tires, Inc. Employee Stock Ownership Plan (ESOP) which refinanced three previously existing promissory notes. The next annual payment is due in April 1995, in the amount of $240,000 plus accrued interest and the final installment is due in April 1996. The Company is required to make contributions to the ESOP in an amount equal to these principal and interest payments. Contributions are anticipated to meet or exceed these debt service requirements; however, contributions exceeding these payments are at the discretion of the Board of Directors. In December 1994, the Company sold its Denver RSC to an unrelated third party in connection with the conversion to the Las Vegas RSC, as noted in the section below. This sale was consummated with a down payment of $242,000, certain rent concessions, and the assignment of the Company's promissory note and mortgage on the facility from the existing mortgagee. The financial obligations under this mortgage were not released by the mortgagee, so the Company remains obligated on this mortgage in the event that the purchaser defaults. At December 31, 1994, this financial commitment amounted to $2.8 million. The Company is required to vacate the 22 warehouse portion of the premises by March 31, 1995. As part of the sale agreement, the Company will maintain usage of the corporate office space for three (3) years. Las Vegas RSC Conversion. In June 1993, the Company announced a plan to consolidate three of its RSCs (Vacaville, California, Ontario, California and Denver, Colorado, as noted above) into a 300,000 square foot facility located near Las Vegas, Nevada. The purpose of this consolidation was to continue the Company's efforts to reduce selling, administrative, and product delivery expense (S&A Expense). In May 1994, the Company closed its RSC in Vacaville, California and consolidated its operations into the Ontario RSC. The Vacaville warehouse was leased to an unrelated third party, which lease continues until March 2000. The warehouse and lease are currently being marketed for sale. Upon the sale, the cash proceeds will be used to reduce the outstanding loan balance with First Chicago. It is presently anticipated that the Ontario RSC operations will be fully converted to the Las Vegas RSC by May 1995. The Company is obligated under the lease for the Ontario warehouse until May 1998. This warehouse space is currently being marketed for lease. After all operations have been successfully consolidated at the Las Vegas RSC, S&A Expense is anticipated to be reduced. However, during the first six months of 1995, S&A Expenses are anticipated to remain approximately at current levels until the Denver and Ontario RSC's are closed. The lease costs associated with the Ontario warehouse have been accrued for the first twelve months of vacancy after the facility is closed. Costs associated with the lease after that time are currently expected to be absorbed by the subtenant, if one is secured; if not, the Company will incur additional expense. Capital Expenditures. In February 1995, the Company acquired the Las Vegas RSC at a total cost of approximately $7.7 million. Change orders associated with the completion of this facility currently amount to an additional $300,000. New equipment including computer hardware and software to operate this facility will add an additional estimated $650,000 to 1995 capital expenditures. Additional capital expenditures are anticipated in connection with the real estate development activities described above. While it has been anticipated that the Boise RSC would be expanded in 1995, this expansion has been deferred. Acquisition and implementation of a new computer hardware and software system for the Company continues to be evaluated. Additional Issues That Could Impact Liquidity. Expenses associated with the warranty program offered by the Company have reduced profitability over the past seven (7) years. While negotiated programs with suppliers have aided the Company in reducing the financial impact of this warranty program during the last four years, certain agreements with the Company's previous supplier have been limited as to future application. The Company now has 77% of its private brand product produced by Kelly-Springfield and it is anticipated that nearly all of this product will be produced by Kelly-Springfield by the end of 1995. The Company continues to have a significant portion of its Franchisees located in California. The Company will continue to grow in this significant market, but is also looking to expand Retail Store development in other states, principally Washington, Oregon, and Arizona in 1995. In 1993 the Company and its Franchisees experienced adverse publicity in the state of California, which may have had an impact on retail sales during 1994. Retail sales and the ability to franchise new locations within California may be impacted in the future, although the exact extent, if any, cannot be forecast at this time. A portion of the Company's growth strategy involves the addition of master Franchisees (both domestically and internationally) and conversion of existing tire chains to the Big O system. While the Company is prepared to offer certain financial arrangements to assist in a conversion, the Company cannot estimate the exact financial commitment that such a conversion will require since it is based both on the number of stores converted as well as the financing provided with each such conversion. 23 In 1994, the Company assisted in one environmental issue located in California. The Company settled this matter at a negligible cost. The Company has periodically been involved with minor clean ups associated with certain Retail Stores in which the Company has been a tenant or subtenant. Generally, the costs of these clean ups have been less than $10,000; however, there is no assurance that such environmental remediations in the future can be limited to this amount. As a result of these environmental concerns and the Company's real estate development strategy, the Company has adopted a policy requiring that all new projects have Phase I environmental studies conducted before the project is approved and the location is acquired. Market risks associated with changes in interest rates could have an impact on the Company's profitability due to the significant amounts of financing tied to variable interest rates. Increases in consumer interest rates could have an adverse effect on the sales of the Company's products to its Retail Stores, since such Retail Stores sell a portion of their products and services to the consumer on credit. Management established a credit card system and financing program with American General Finance, Inc. to assist in the maintenance of credit availability for the consumer. There is no assurance that this finance company, or any other finance company, will continue to offer an acceptable financing program in the event that interest rates increase. As noted earlier, closures of Retail Stores can have significant financial impact on the Company's operations and cash flows. While the cost of certain lease guarantees were reserved and expensed in 1994, the cash flow requirements from these leases will continue until the lease has expired. Further, the failure of any Retail Stores for which the Company has guaranteed a lease will result in reduced financial performance and a resulting impact on future cash flows. SEASONALITY The Retail Stores experience some seasonal variation of product sales because tire sales are generally greater during the summer than in the winter months. The Company generally experiences some degree of seasonality, although not to the same extent that Retail Stores do, as the Company maintains sales to certain Retail Stores that offset this trend on a national basis through the sale of such products as snow tires and chains. The Company has historically generated operating losses or lower profits during the first quarter of each fiscal year because of lower sales volumes and higher expenses as a percentage of sales. INFLATION AND PRICE CHANGES As a matter of industry practice, most tire distributors adjust the selling price of inventories when prices increase (decrease) which result in gross profit increases (decreases) associated with the sale of existing inventories at these higher (lower) prices. However, management has recently noted that certain "discount" distributors may defer this price increase on their existing inventory in an effort to increase market share. Price increases contributed approximately $360,000, $90,000 and $712,000 to the Company's gross profits for 1994, 1993 and 1992, respectively. The Company received price increases from its suppliers of between 3 and 4% on tires and other products in 1994. Manufacturers implemented a 3% price increase starting March 1995. The Company is unsure as to whether this price increase will be supported by the industry, although initial indications are that it will. Since price increases are initiated by manufacturers and are then subject to competitive pressures, management cannot predict any future increases for 1995 or thereafter. ACCOUNTING STANDARDS The Financial Accounting Standards Board (FASB) has issued Statement of Financial Accounting Standard (FAS) No. 107, Disclosures About Fair Value of Financial Instruments, which is required to be implemented for the Company's fiscal year ending December 31, 1995. Since this FAS only requires additional disclosure of the fair value of certain financial instruments for which it is practicable to estimate such value, the earlier adoption of this FAS would not have materially affected the Company's financial position nor results of operations for the year ended December 31, 1994. 24 The FASB has issued two additional financial accounting standards, FAS No. 114, Accounting by Creditors for Impairment of a Loan, and FAS No. 118, Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures, which are required to be implemented for the Company's fiscal year ending December 31, 1995. The earlier adoption of these FAS's would not have materially affected the Company's financial position nor results of operations for the year ended December 31, 1994. The FASB has also issued FAS No. 119, Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments, which is required to be implemented for the Company's fiscal year ending December 31, 1996. At December 31, 1994, the Company did not hold any derivative financial instruments for trading or other purposes, and the Company did not purchase any such instruments during the year then ended. Accordingly, the earlier adoption of this FAS would not have materially affected the Company's financial position nor results of operations for the year ended December 31, 1994. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA All Financial Statements and Financial Statement Schedules required to be filed hereunder are listed under Item 14 and are attached hereto following the signature page. (a) Selected Quarterly Financial Data (in thousands except per share data):
1994 Quarter Ended --------------------------------------------- March 31 June 30 September 30 December 31 -------- -------- ------------ ----------- Net Sales $26,393 $31,087 $36,652 $33,546 Gross Profit 6,285 8,083 7,561 8,202 Income Tax 152 479 421 898 Net Income 205 650 599 1,237 Net Income Per Common Share .06 .19 .18 .37 1993 Quarter Ended --------------------------------------------- March 31 June 30 September 30 December 31 -------- ------- ------------ ----------- Net Sales $27,077 $31,810 $35,241 $28,832 Gross Profit 6,137 7,200 7,898 6,396 Income Tax 261 136 509 494 Cumulative Effect of Change in Accounting Principle 285 --- --- --- Net Income 81 191 715 608 Net Income Per Common Share .02 .06 .22 .18 ----------
(b) Information about Oil and Gas Producing Activities Not applicable. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 25 PART III Items 10 through 13 of this Form 10-K are omitted by the Company and are incorporated by reference to the Company's definitive Proxy Statement for the Company's 1995 Annual Meeting of Shareholders which will be filed with the United States Securities and Exchange Commission not later than 120 days after the close of the Company's fiscal year. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) (1) List of Financial Statements The following is a list of financial statements which, along with the auditors' report, accompany this Form 10-K: - Independent Auditors' Report - Deloitte & Touche LLP - Consolidated Balance Sheets December 31, 1994 and 1993 - Consolidated Statements of Income Years Ended December 31, 1994, 1993, and 1992 - Consolidated Statements of Shareholders' Equity Years ended December 31, 1994, 1993, and 1992 - Consolidated Statements of Cash Flows Years ended December 31, 1994, 1993, and 1992 - Notes to Consolidated Financial Statements (a) (2) List of Schedules Required by Item 8 and Item 14 (d) None. (a) (3) List of Exhibits Required by Item 601 of Regulation S-K EXHIBIT NUMBER (3.1) Certificate of Amendment to Restated Articles of Incorporation of Big O Tires, Inc. dated June 10, 1992 and Restated Articles of Incorporation of Big O Tires, Inc. dated August 17, 1987 (incorporated by reference to Exhibit 3 to Quarterly Report on Form 10-Q for quarter ended June 30, 1992). (3.2) Amended and Restated Bylaws of Big O Tires, Inc., a Nevada corporation, as amended, August 26, 1994 (incorporated by reference to Exhibit 2 to Current Report on Form 8-K dated August 26, 1994). (4.1) Rights Agreement dated as of August 26, 1994, between Big O Tires, Inc. and Interwest Co., Inc., as Rights Agent (incorporated by reference to Exhibit 1 to Current Report on Form 8-K dated August 26, 1994). (10.1) 1994 Restatement of Employee Stock Ownership Plan and Trust Agreement of Big O Tires, Inc. (incorporated by reference to Exhibit 10.3 to Big O Tires, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 1994). (10.2) Big O Tires, Inc. Director and Employee Stock Option Plan (incorporated by reference to Exhibit 10.11 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1988). 26 (10.3) First Amendment to the Big O Tires, Inc. Director and Employee Stock Option Plan (incorporated by reference to Exhibit 10.10 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1989). (10.4) Amendment No. 2 to the Big O Tires, Inc. Director and Employee Stock Option Plan (incorporated by reference to Exhibit 10.16 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1992). (10.5) Ultimate Net Loss Agreement between Big O Tires, Inc. and FBS Business Finance Corporation dated January 13, 1989 (incorporated by reference to Exhibit 10.34 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1988). (10.6) Purchase Agreement effective June 30, 1987, and related documents including Promissory Notes, Modification Agreements, Security Agreements, Guaranty Agreement, and Subleases in connection with a purchase by C.S.B. Partnership and three individuals including Ronald D. Asher, of three Big O Franchise Retail Tire Stores in California from Security/Cal, Inc., a wholly-owned subsidiary of the Company, and H.R.I., Inc., a wholly-owned subsidiary of Security/Cal, Inc. (incorporated by reference to Exhibit 10.63 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1987). (10.7) Purchase Agreement effective November 1, 1987, and related documents including Promissory Notes, Security Agreements, Guaranty Agreements, Subleases, and Franchise Agreements in connection with a purchase by C.S.B. Partnership and its three general partners, including Ronald D. Asher, of two Big O Franchise Retail Tire Stores in California from Security/Cal, Inc. and H.R.I., Inc. (Seller) (incorporated by reference to Exhibit 10.45 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1988). (10.8) Purchase Agreements effective July 5, 1988, October 1, 1988, and November 14, 1988, and related documents including Promissory Notes, Security Agreements, Guaranty Agreements, and Subleases in connection with a purchase by C.S.B. Partnership and three individuals including Ronald D. Asher of three Big O Franchise Retail Tire Stores in California from Big O Tires, Inc., Security/Cal, Inc., a wholly-owned subsidiary of the Company, and H.R.I., Inc., a wholly-owned subsidiary of Security/Cal, Inc. (incorporated by reference to Exhibit 10.46 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1988). (10.9) Agreement and Release dated October 31, 1989, and related documents including Promissory Note, related Subleases, Assignment of Lease Rights, and Performance Guarantee in connection with the purchase by C.S.B. Partnership and its general partners, including Ronald D. Asher, of two (2) Big O franchise retail tire stores in California, owned by GEM Tire, Inc. from the Company (incorporated by reference to Exhibit 10.57 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1989). (10.10) Ultimate Net Loss Agreement, dated as of December 1, 1990, by and between Big O Tires, Inc. and Northcross Financial Services, Inc., ICON Capital Corp., in its individual capacity and on behalf of ICON Cash Flow Partners, L.P., Series A, ICON Cash Flow Partners, L.P., Series B and any future partnerships on which it may be the general partner and/or manager (incorporated by reference to Exhibit 10.70 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1990). (10.11) Loan and Security Agreement dated October 15, 1991, with its former lender together with exhibits and appendices (incorporated by reference to Exhibit 10.57 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1991). (10.12) Assignment for Security (Trademarks and Trademark Licenses), dated October 15, 1991, providing collateral assignment of Big O Tires, Inc.'s and its subsidiaries' trademark and trademark licenses to its 27 former lender (incorporated by reference to Exhibit 10.58 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1991). (10.13) Stock Pledge Agreement dated October 15, 1991, whereunder Big O Tires, Inc. pledged stock holdings of its subsidiary companies to its former lender (incorporated by reference to Exhibit 10.59 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1991). (10.14) Continuing Guaranty Agreement dated October, 15, 1991, providing the guarantee by certain of Big O Tires, Inc.'s subsidiary companies for the obligations of Big O Tires, Inc. under the Loan and Security Agreement with its former lender (incorporated by reference to Exhibit 10.60 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1991). (10.15) First Amendment to Loan and Security Agreement, dated as of November 18, 1991, with its former lender (incorporated by reference to Exhibit 10.62 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1991). (10.16) Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing dated as of November 19, 1991, for the benefit of its former lender which now enjoys a first lien position on Big O Tires, Inc.'s Vacaville, California Regional Sales and Service Center (incorporated by reference to Exhibit 10.65 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1991). (10.17) Secured Promissory Note dated April 3, 1992, in the original principal amount of $3,000,000, payable to the order of its former lender which evidences Big O Tires, Inc.'s $3,000,000 term loan facility (incorporated by reference to Exhibit 10.67 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1991). (10.18) 1994 Incentive Bonus Plans (incorporated by reference to Exhibit 10.43 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1993). (10.19) Agreement of Joint Venture of Big O/C.S.B. Joint Venture dated as of June 1, 1992, by and between Big O Retail Enterprises, Inc., a wholly- owned subsidiary of Big O Tires, Inc., and C.S.B. Partnership, a California general partnership (incorporated by reference to Exhibit 10.70 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1991). (10.20) Amendment No. 1 to Agreement of Joint Venture of Big O/C.S.B. Joint Venture dated as of May 15, 1993 (incorporated by reference to Exhibit 10.27 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1993). (10.21) Purchase Agreement for Private Brand Name Tires between Big O Tires, Inc. and The Kelly-Springfield Tire Co., dated August 16, 1992 (incorporated by reference to Exhibit 10.71 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1991). (10.22) Big O Tires, Inc. Long Term Incentive Plan (incorporated by reference to Exhibit 55 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1992). (10.23) Amendment No. 1 to Big O Tires, Inc. Long Term Incentive Plan (incorporated by reference to Exhibit 56 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1992). (10.24) Amendment No. 2 to Big O Tires, Inc. Long Term Incentive Plan (incorporated by reference to Exhibit 57 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1992). (10.25) Agreement of Joint Venture of Big O/S.A.N.D.S. Joint Venture (incorporated by reference to Exhibit 58 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1992). 28 (10.26) Commitment Letters dated July 22, 1992, from AT&T Capital Corporation (incorporated by reference to Exhibit 64 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1992). (10.27) Agreement dated as of November 15, 1992, among Peerless Trading Company, Limited, Delaware Liquidators, Inc. dba Trade Center Imports, and Big O Tires, Inc.; Purchase Money Non-Negotiable Promissory Note dated as of November 15, 1992, from Peerless Trading Company, Limited to Big O Tires, Inc.; and amendment dated January 19, 1993 to the Agreement dated November 15, 1992 (incorporated by reference to Exhibit 66 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1992). (10.28) Marketing Agreement for Private Brand Tires between Big O Tires, Inc. and General Tire, Inc., dated May 14, 1993 (incorporated by reference to Exhibit 10.1 to Big O Tires, Inc.'s Current Report on Form 8-K dated April 30, 1993). (10.29) Closing Agreement between General Tire, Inc. and Big O Tires, Inc., dated May 14, 1993 (incorporated by reference to Exhibit 10.2 to Big O Tires, Inc.'s Current Report on Form 8-K dated April 30, 1993). (10.30) Second Amendment to Loan and Security Agreement by and among its former lender and Big O Tires, Inc., Big O Retail Enterprises, Inc. and Big O Tire of Idaho, Inc., dated May 14, 1993 (incorporated by reference to Exhibit 10.3 to Big O Tires, Inc.'s Current Report on Form 8-K dated April 30, 1993). (10.31) Inventory Financing Agreement between The Kelly-Springfield Tire Company and Big O Tires, Inc. and/or Big O Tire of Idaho, Inc. and/or Big O Retail Enterprises, Inc., dated May 14, 1993 (incorporated by reference to Exhibit 10.4 to Big O Tires, Inc.'s Current Report on Form 8-K dated April 30, 1993). (10.32) Demand Note in the original principal amount of $6,000,338.67 with The Kelly-Springfield Tire Co. as Holder and Big O Tires, Inc., Big O Retail Enterprises, Inc. and Big O Tire of Idaho, Inc., as Maker (incorporated by reference to Exhibit 10.50 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1993). (10.33) Purchase Agreement by and among Tire Brands, Inc. and Big O Tires, Inc., dated as of April 30, 1993 (incorporated by reference to Exhibit 10.5 to Big O Tires, Inc.'s Current Report on Form 8-K dated April 30, 1993). (10.34) Consolidation and Modification Agreement among Big O Tires (successor in interest to H.R.I., Inc. and Security/Cal, Inc.) and Big O Retail Enterprises, Inc. and C.S.B. Partnership (incorporated by reference to Exhibit 10.51 to Big O Tires, Inc.'s Registration Statement No. 33- 65852). (10.35) Modification of Consolidation and Modification Agreement by and between C.S.B. Partnership and Big O Tires, Inc. (incorporated by reference to Big O Tires, Inc.'s Form 10-K for the year ended December 31, 1993). (10.36) Registration Rights Agreement dated June 28, 1993, between the Selling Shareholder and Big O Tires, Inc. (incorporated by reference to Exhibit 10.52 to Big O Tires, Inc.'s Registration Statement No. 33- 65852). (10.37) Loan Agreement and Promissory Note in the original principal amount of $155,000.00 with C.S.B. Partnership as Maker (incorporated by reference to Exhibit 10.44 to Big O Tires, Inc.'s Form 10-K for the fiscal year ended December 31, 1993). (10.38) Loan Agreement and Promissory Note in the original principal amount of $70,000.00 with Big O/C.S.B Joint Venture as Maker (incorporated by reference to Exhibit 10.45 to Big O Tires, Inc.'s Form 10-K for the fiscal year ended December 31, 1993). 29 (10.39) Loan Agreement and Promissory Note in the original principal amount of $75,000.00 with Big O/S.A.N.D.S. Joint Venture as Maker (incorporated by reference to Exhibit 10.46 to Big O Tires, Inc.'s Form 10-K for the fiscal year ended December 31, 1993). (10.40) Commercial Note and Loan Agreement, Commercial Mortgage and Environmental Certificate between Big O Development, Inc. and National City Bank, Kentucky, and Guaranty Agreement of Big O Tires, Inc. guaranteeing the obligations of Big O Development, Inc. to National City Bank, Kentucky in connection with the borrowing of $1,500,000 for construction of the Company's Regional Sales and Service Center in New Albany, Indiana (incorporated by reference to Exhibit 10.47 to Big O Tires, Inc.'s Form 10-K for the fiscal year ended December 31, 1993). (10.41) Construction Agreement between Big O Development, Inc. and Koetter Construction, Inc. to construct the Regional Sales and Service Center in Floyd County, Indiana (incorporated by reference to Exhibit 10.48 to Big O Tires, Inc.'s Form 10-K for the fiscal year ended December 31, 1993). (10.42) Purchase and Sale Agreement and Joint Escrow Instructions by and between Western Realco and Big O Tires, Inc. for the purchase of the Company's Regional Sales and Service Center in Clark County, Nevada (incorporated by reference to Exhibit 10.49 to Big O Tires, Inc.'s Form 10-K for the fiscal year ended December 31, 1993). (10.43) Lease between Big O Tires, Inc. and Simpson Dura-Vent Company, Inc., dated January 24, 1994 for property located at 877 Cotting Court, Vacaville, California and related election of option to accelerate occupation (incorporated by reference to Exhibit 10.51 to Big O Tires, Inc.'s Form 10-K for the fiscal year ended December 31, 1993). (10.44) Letter dated January 26, 1994 from General Tire, Inc. to the Company terminating the Marketing Agreement for Private Brand Name Tires between Big O Tires, Inc. and General Tire, Inc. dated May 14, 1993 (incorporated by reference to Exhibit 10.52 to Big O Tires, Inc.'s Form 10-K for the fiscal year ended December 31, 1993). (10.45) Purchase Agreement by and between Caps Tire Limited Liability Company and Intermountain Big O Realty for the Big O Tires Retail Store located at 8151 East Arapahoe Road, Englewood, Colorado (incorporated by reference to Exhibit 10.53 to Big O Tires, Inc.'s Form 10-K for the fiscal year ended December 31, 1993). (10.46) Third and Fourth Amendments to Loan and Security Agreement by and between Big O Tires, Inc. and its primary lender (incorporated by reference to Exhibit 10.54 to Big O Tires, Inc.'s Form 10-K for the fiscal year ended December 31, 1993). (10.47) Limited Partnership Agreement by and between Donald J. Horton, General Partner, Thomas L. Staker, General Partner, and Big O Tires, Inc., Limited Partner, dated as of December 31, 1993 (incorporated by reference to Exhibit 10.56 to Big O Tires, Inc.'s Form 10-K for the fiscal year ended December 31, 1993). (10.48) Loan Agreement and Guaranty, Promissory Note and Security Agreement with Big O Tires, Inc. Employee Stock Ownership Plan ("ESOP") as Borrower, Big O Tires, Inc., as Guarantor, and Key Bank of Wyoming, as Lender, in connection with the refinancing of the ESOP debt in the amount of $960,000 (incorporated by reference to Exhibit 10.57 to Big O Tires, Inc.'s Form 10-K for the fiscal year ended December 31, 1993). (10.49) Amendment to Partnership Agreement dated August 25, 1994, by and between Big O Development, Inc., a Colorado corporation, a wholly- owned subsidiary of Big O Tires, Inc. and Mill Creek Associates, Ltd., a Colorado limited partnership (incorporated by reference to Exhibit 10.2 to Big O Tires, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 1994). 30 (10.50) Agreement dated July 1, 1994, by and between General Tire, Inc., an Ohio corporation and Big O Tires, Inc. (incorporated by reference to Exhibit 10.4 to Big O Tires, Inc.'s Quarterly Report on Form 10-Q dated September 30, 1994). (10.51) Consulting Agreement by and between Big O Tires, Inc., and Horst K. Mehlfeldt (incorporated by reference to Exhibit 10.5 to Big O Tires, Inc.'s Quarterly Report on Form 10-Q dated September 30, 1994). (10.52) Letter Agreement dated January 10, 1995, amending the Consulting Agreement by and between Big O Tires, Inc. and Horst K. Mehlfeldt (incorporated by reference to Exhibit 10.3 to Big O Tires, Inc.'s Current Report on Form 8-K dated January 10, 1995). (10.53) Letter Agreement dated July 12, 1994, by and between Big O Tires, Inc. and PaineWebber Incorporated (incorporated by reference to Exhibit 10.6 to Big O Tires, Inc.'s Quarterly Report on Form 10-Q dated September 30, 1994). (10.54) Letter Agreement dated March 23, 1994, by and between Big O Tires, Inc. and The CIT Group/Equipment Financing, Inc., a New York corporation (incorporated by reference to Exhibit 10.7 to Big O Tires, Inc.'s Quarterly Report on Form 10-Q dated September 30, 1994). (10.55) Ultimate Net Loss Agreement dated October 21, 1994, by and between Big O Tires, Inc. and The CIT Group/Equipment Financing, Inc., a New York corporation (incorporated by reference to Exhibit 10.8 to Big O Tires, Inc.'s Quarterly Report on Form 10-Q dated September 30, 1994). (10.56) Fifth Amendment to Loan and Security Agreement by and between Big O Tires, Inc. and its former lender dated April 29, 1994 (incorporated by reference to Exhibit 10.1 to Big O Tires, Inc.'s Quarterly Report on Form 10-Q dated September 30, 1994). (10.57) Agreement by the Investment Committee of the Board of Directors and the Management/Dealer participants dated September 22, 1994 (incorporated by reference to Exhibit 10.1 to Big O Tires, Inc.'s Current Report on Form 8-K dated December 6, 1994). (10.58) Letter dated September 13, 1994, to the Investment Committee of Big O Tires, Inc. and the Management participants and Dealer representatives (incorporated by reference to Exhibit 10.2 to Big O Tires, Inc.'s Current Report on Form 8-K dated December 6, 1994). (10.59) Letter dated February 7, 1995, from the Dealer-Management Group to the Company's Board Chairman (incorporated by reference to Exhibit 10.1 to Big O Tires, Inc.'s Current Report on Form 8-K dated January 10, 1995). (10.60) Agreement between the Company and the Management/Dealer participants dated January 20, 1995 (incorporated by reference to Exhibit 10.2 to Big O Tires, Inc.'s Current Report on Form 8-K dated January 10, 1995). (10.61) Form of Franchise Agreement currently in use. (10.62) Multi-Tenant Lease NNN dated December 1, 1994 between Botac VI Leasing L.L.C., a Utah Limited Liability Company and Big O Development, Inc . (10.63) Assignment and Assumption Agreement dated December 2, 1994 by Big O Development, Inc., Big O Tires, Inc. and Botac VI Leasing, L.L.C. and Allstate Life Insurance Company. (10.64) Guarantee Agreement dated December 2, 1994 by Big O Tires, Inc., Big O Development, Inc. and Allstate Life Insurance Company. 31 (10.65) Closing Agreement dated December 2, 1994 by Big O Development, Inc., Big O Tires, Inc., Botac VI Leasing, L.L.C., and Allstate Life Insurance Company. (10.66) Commercial contract to Buy and Sell Real Estate dated March 17, 1994 between Bailey's Moving and Storage and Big O Tires, Inc. (10.67) Confidentiality Agreement dated September, 1994 between Big O Tires, Inc. and Kenneth W. Pavia, Sr. (10.68) Amendment No. 1 to the Big O Tires, Inc. Employee Stock Ownership Plan and Trust Agreement dated September 12, 1994. (10.69) Development Management Agreement dated September, 1994 between Ross Development Management Group, Inc. and Big O Development, Inc. and Big O Tires, Inc. (10.70) Letter Agreement dated February 20, 1995 terminating the Consulting Agreement between Big O Tires, Inc. and Horst K. Mehlfeldt. (10.71) 1995 Incentive Bonus Plans (10.72) Commitment Letter dated February 16, 1994 between Big O Tires, Inc. and AT&T Commercial Finance Corporation for real estate financing. (10.73) Commitment Letter dated February 16, 1994 between Big O Tires, Inc. and AT&T Commercial Finance Corporation for equipment financing. (10.74) Extension letter dated December 9, 1994 between Big O Tires, Inc. and AT&T Commercial Finance Corporation to extend existing lines of credit through December 31, 1995. (10.75) Resignation letter dated February 27, 1995 from Robert L. Puckett. (10.76) Resignation letter dated February 24, 1995 from David W. Dwyer. (10.77) Revolving Credit Agreement dated January 23, 1995 between Big O Tires, Inc. and The First National Bank of Chicago. (10.78) Consent, Acknowledgement and Access Agreement dated January 23, 1995 between The Bank of Cherry Creek, N.A., Kenneth B. Buckius and The First National Bank of Chicago. (10.79) Note Purchase Agreement dated April 27, 1994 between Big O Tires, Inc. and USG Annuity & Life Company and Republic Western Insurance Company. (10.80) Franchise Agreement dated October 7, 1994 between Big O Tires, Inc. and OK Tires, Inc. for the Retail Store located at 2830 West 3500 South, West Valley City, Utah 84119. (10.81) Franchise Agreement dated November 26, 1993 between Big O Tires, Inc. and CAPS Tire Limited Liability Company for the Retail Store located at 8151 East Arapahoe Road, Englewood, Colorado 80112. (10.82) Form of Confidentiality Agreement signed by dealers dated October 19, 1994. (10.83) Ultimate Net Loss Agreement dated November 30, 1994, by and between Big O Tires, Inc. and The CIT Group/Equipment Financing, Inc., a New York corporation. 32 (10.84) Inventory Financing Agreement together with a Demand Note dated September 30, 1994, by and between The Kelly-Springfield Tire Company and Big O Tires, Inc., Big O Retail Enterprises, Inc. and Big O Tire of Idaho, Inc. (10.85) Supplemental Executive Retirement Plan dated December 7, 1994, by Big O Tires, Inc., effective January 1, 1994. (10.86) Forms of Stock Appreciation Rights Agreement dated February 15, 1995, between Big O Tires, Inc. and the Members of the Chief Executive Office. (10.87) Letter Agreement dated March 24, 1995, regarding severance package, between Big O Tires, Inc., and John E. Siipola. (10.88) Letter Agreement dated March 24, 1995, regarding severance package, between Big O Tires, Inc., and Horst K. Mehlfeldt. (21.1) Big O Tires, Inc. Subsidiaries. (25.1) Powers of Attorney executed by each of the Directors of Big O Tires, Inc. (27.1) Big O Tires, Inc.'s Financial Data Schedule. (99.1) October 31, 1994 press release issued by AKH Company, Inc., a California based retail tire chain, doing business as "Discount Tire Centers" and "Evans Tire and Service Centers" (incorporated by reference to Exhibit 99.1 to Big O Tires, Inc.'s Quarterly Report on Form 10-Q dated September 30, 1994). (99.2) November 1, 1994 press release issued by Big O Tires, Inc. (incorporated by reference to Exhibit 99.2 to Big O Tires, Inc.'s Quarterly Report on Form 10-Q dated September 30, 1994). __________ * All executive compensation plans and arrangements required to be filed as exhibits to the Form 10-K pursuant to Item 601. (b) Reports on Form 8-K 1. In a Current Report on Form 8-K, dated December 2, 1994, the Company reported on two proposals with contingencies to acquire the outstanding shares of the Company. No assurances were given that either of the proposals would be consummated. 2. In a Current Report on Form 8-K, dated December 6, 1994, the Company reported that the Investment Committee of the Board of Directors agreed to enter into a period of exclusive negotiations with a group of officers, managers and franchised dealers ("Dealer-Management Group") that recently made an offer to acquire the outstanding shares of the Company and that AKH Company, Inc., who had made a previous offer to acquire the Company had advised the Investment Committee it was contemplating deferring any further proposal as long as the Dealer-Management Group's bid remains under active consideration. The Company also reported that two separate class action lawsuits had been filed against the Company and its nine directors similarly requesting, among other things, the court to enjoin the sale of the Company to the Dealer-Management Group. (c) Exhibits Exhibits required by Item 601 of Regulation S-K are listed above under (a) (3) of this Item 14. (d) Financial Statement Schedules Financial Statement Schedules are listed above under (a) (2) of this Item 14. 33 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: March 29, 1995 BIG O TIRES, INC., a Nevada corporation By: /s/ JOHN E. SIIPOLA ---------------------------------- John E. Siipola Member of the Office of the Chief Executive and Chairman By: /s/ HORST K. MEHLFELDT ---------------------------------- Horst K. Mehlfeldt Member of the Office of the Chief Executive and Vice-Chairman By: /s/ STEVEN P. CLOWARD ---------------------------------- Steven P. Cloward Member of the Office of the Chief Executive and President By: /s/ JOHN B. ADAMS ---------------------------------- John B. Adams Principal Accounting Officer By: /s/ JOHN B. ADAMS ---------------------------------- John B. Adams Chief Financial Officer 34 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date Name and Title Signature ---- -------------- --------- March 29, 1995 John E. Siipola JOHN E. SIIPOLA Director, Member of the Office of the Chief Executive and Chairman of the Board Horst K. Mehlfeldt HORST K. MEHLFELDT Director, Member of the Office of the Chief Executive and Vice-Chairman of the Board Steven P. Cloward STEVEN P. CLOWARD Director, Member of the Office of the Chief Executive and President John B. Adams JOHN B. ADAMS Director and Principal Financial Officer Ronald D. Asher RONALD D. ASHER Director Frank L. Carney FRANK L. CARNEY Director Everett H. Johnston EVERETT H. JOHNSTON Director Ralph J. Weiger RALPH J. WEIGER Director C. Thomas Wernholm C. THOMAS WERNHOLM Director
March 29, 1995 By: /s/ JOHN B. ADAMS ---------------------------------- John B. Adams Attorney-in-Fact 35 Independent Auditors' Report ---------------------------- To the Shareholders and Board of Directors of Big O Tires, Inc. Englewood, Colorado We have audited the accompanying consolidated balance sheets of Big O Tires, Inc. as of December 31, 1994 and 1993, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 1994 and 1993 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Denver, Colorado March 13, 1995 36 BIG O TIRES, INC. ----------------- CONSOLIDATED BALANCE SHEETS --------------------------- DECEMBER 31, 1994 AND 1993 -------------------------- (000s except for share amounts) -------------------------------
ASSETS 1994 1993 ------------------------------------------------------------ ------- ------- CURRENT ASSETS: Cash and cash equivalents $ 4,882 $ 1,113 Trade accounts receivable, net of allowance for doubtful accounts of $835 in 1994 and $1,039 in 1993 8,165 7,016 Other receivables 2,905 706 Current portion of notes receivable: Related parties 10 195 Other 723 798 Inventories 14,219 11,748 Deferred income taxes 2,126 1,802 Other current assets 688 758 ------- ------- Total current assets 33,718 24,136 ------- ------- NOTES RECEIVABLE, net of current portion: Related parties 20 955 Other 3,173 4,668 ------- ------- 3,193 5,623 ------- ------- PROPERTY, PLANT AND EQUIPMENT: Furniture and equipment 6,021 5,939 Buildings and leasehold improvements 7,413 9,311 Land and land improvements 1,574 2,815 Construction in progress 2,169 - ------- ------- 17,177 18,065 Less accumulated depreciation and amortization (5,146) (4,912) ------- ------- 12,031 13,153 ------- ------- INTANGIBLE AND OTHER ASSETS: Distribution rights, net of accumulated amortiza- tion of $1,816 in 1994 and $1,538 in 1993 9,077 9,355 Equity in joint ventures and unconsolidated subsidiaries 1,129 1,385 Other 2,820 2,955 ------- ------- 13,026 13,695 ------- ------- TOTAL ASSETS $61,968 $56,607 ======= =======
See consolidated notes to financial statements. BIG O TIRES, INC. ----------------- CONSOLIDATED BALANCE SHEETS --------------------------- DECEMBER 31, 1994 AND 1993 -------------------------- (000s except for share amounts) -------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY 1994 1993 --------------------------------------------------- ------- ------- CURRENT LIABILITIES: Accounts payable $ 650 $ 3,613 Accrued payroll and benefits 1,130 1,257 Other accrued expenses 1,355 1,478 Warranty reserve 3,850 3,254 Current portion of long-term debt 2,033 2,448 Current portion of capital lease obligations 33 201 ------- ------- Total current liabilities 9,051 12,251 ------- ------- LONG-TERM DEBT, net of current portion 15,739 10,783 ------- ------- CAPITAL LEASE OBLIGATIONS, net of current portion 167 254 ------- ------- OTHER LONG-TERM LIABILITIES 1,433 856 ------- ------- EMPLOYEE STOCK OWNERSHIP PLAN OBLIGATIONS 449 975 ------- ------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Common stock: $ .10 par value 100,000,000 shares authorized, shares issued: 3,339,300 in 1994 and 3,274,900 in 1993 334 327 Capital contributed in excess of par 15,418 14,529 Retained earnings 20,419 17,728 ------- ------- 36,171 32,584 Less: Employee stock ownership plan obligations (449) (975) Deferred stock grant compensation (472) - Treasury stock, at cost, 31,300 shares (121) (121) ------- ------- 35,129 31,488 ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $61,968 $56,607 ======= =======
See notes to consolidated financial statements. BIG O TIRES, INC. ----------------- CONSOLIDATED STATEMENTS OF INCOME --------------------------------- FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 ---------------------------------------------------- (000s except for share and per share amounts) ---------------------------------------------
1994 1993 1992 --------- --------- --------- SALES, net $ 127,678 $ 122,960 $ 119,799 COST OF SALES 97,547 95,329 92,150 --------- --------- --------- GROSS PROFIT 30,131 27,631 27,649 --------- --------- --------- EXPENSES, net: Selling and administrative 19,132 19,316 19,372 Product delivery expense 3,113 2,499 2,341 Interest expense 1,465 1,219 1,170 Loss on sale or closure of retail stores 1,106 429 -- Shareholder proposal expense 674 -- -- Offering costs -- 281 -- Warehouse consolidation costs -- 607 -- --------- --------- --------- 25,490 24,351 22,883 --------- --------- --------- INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 4,641 3,280 4,766 --------- --------- --------- PROVISION FOR INCOME TAXES: Current 2,311 1,979 2,275 Deferred (361) (579) (292) --------- --------- --------- 1,950 1,400 1,983 --------- --------- --------- INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 2,691 1,880 2,783 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE -- 285 -- --------- --------- --------- NET INCOME $ 2,691 $ 1,595 $ 2,783 ========= ========= ========= EARNINGS PER SHARE: Income before cumulative effect of change in accounting principle $ .80 $ .55 $ .80 Cumulative effect of change in accounting principle -- (.08) -- --------- --------- --------- Net income $ .80 $ .47 $ .80 ========= ========= ========= WEIGHTED AVERAGE SHARES OUTSTANDING 3,347,892 3,409,962 3,497,044 ========= ========= =========
-See notes to consolidated financial statements.- 39 BIG O TIRES, INC. ----------------- CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY ----------------------------------------------- FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 ---------------------------------------------------- ($ only in 000s) ----------------
Employee COMMON STOCK Capital Stock TREASURY STOCK ------------------ Contributed Ownership Deferred ------------------ Number of In Excess Retained Plan Stock Grant Number of Shares Amount of Par Earnings Obligations Compensation Shares Amount --------- ------ ----------- -------- ----------- ------------ --------- ------ BALANCE JANUARY 1, 1992 3,525,300 $352 $19,012 $13,350 $(1,656) $ -- 32,800 $(126) Net Income for 1992 2,783 Stock Options Exercised 17,400 2 11 Deferred Compensation under Discounted Stock Option Plan 75 Treasury Stock Sold 1 (1,800) 7 Employee Stock Ownership Plan Obligations 379 --------- ---- ------- ------- ------- ----- ------ ----- BALANCE DECEMBER 31, 1992 3,542,700 354 19,099 16,133 (1,277) -- 31,000 (119) Net Income for 1993 1,595 Sale of Common Stock 93,300 9 1,097 Stock Issued as Compensation 1,500 19 Stock Options and Warrants Exercised 37,400 4 284 Deferred Compensation under Discounted Stock Option Plan 90 Purchase and Retirement of Treasury Stock and Warrants (400,000) (40) (6,060) Treasury Stock Purchased 300 (2) Employee Stock Ownership Plan Obligations 302 --------- ---- ------- ------- ------- ----- ------ ----- BALANCE DECEMBER 31, 1993 3,274,900 327 14,529 17,728 (975) -- 31,300 (121) Net Income for 1994 2,691 Stock Issued as Compensation 33,700 4 516 (472) Stock Options Exercised 30,700 3 229 Deferred Compensation under Discounted Stock Option Plan 144 Employee Stock Ownership Plan Obligations 526 --------- ---- ------- ------- ------- ----- ------ ----- BALANCE DECEMBER 31, 1994 3,339,300 $334 $15,418 $20,419 $ (449) $(472) 31,300 $(121) ========= ==== ======= ======= ======= ===== ====== =====
-See notes to consolidated financial statements.- 40 BIG O TIRES, INC. ----------------- CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 ---------------------------------------------------- (000s) ------
1994 1993 1992 ------- ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 2,691 $ 1,595 $ 2,783 ------- ------- ------- Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization 1,215 1,168 1,120 Amortization of intangibles 453 390 568 Provision for losses on accounts and notes receivable 356 556 1,245 Loss on sales and retirements of property and equipment 37 40 23 Loss on sales and closures of retail stores 1,106 150 -- Loss on investments in affiliates -- -- 306 Equity in losses of affiliates 250 350 157 Deferred compensation under stock option plan and restricted stock grants 224 90 75 Deferred gain recognized (47) (35) (35) Deferred income taxes (361) (579) (292) Cumulative effect of change in accounting principle -- 285 -- Other -- 104 4 Changes in assets and liabilities: (Increase) decrease in accounts receivable (4,446) (1,206) (1,656) (Increase) decrease in inventories (2,253) 3,356 (1,805) (Increase) decrease in other current assets 161 (329) 58 (Increase) decrease in other assets 9 (40) 32 Increase (decrease) in accounts payable (2,987) 4,528 3,355 Increase (decrease) in accrued expenses 25 278 (376) Increase (decrease) in warranty reserve 596 600 300 Increase (decrease) in other liabilities (258) -- -- ------- ------- ------- Total adjustments (5,920) 9,706 3,079 ------- ------- ------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (3,229) 11,301 5,862 ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Increase in notes receivable (650) (400) (73) Payments received on notes receivable 1,170 1,184 1,126 Proceeds from sales of notes receivable 2,962 -- -- Equity investment in affiliates (187) (673) (221) Acquisition of interest in joint ventures -- (266) -- Acquisition of other assets -- (1,005) -- Contingent payments related to business combination -- (788) (501) Net cash provided by sales of retail stores 204 77 -- Purchase of retail stores (410) (435) (182) Purchases of property and equipment (1,896) (1,039) (753) Proceeds from sales of property and equipment 1,183 42 38 ------- ------- ------- NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 2,376 (3,303) (566) ------- ------- -------
-See notes to consolidated financial statements.- 41 BIG O TIRES, INC. ----------------- CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 ---------------------------------------------------- (000s) ------
1994 1993 1992 -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of long-term debt $10,735 $ 560 $ 1,140 Principal payments on long-term debt (6,106) (4,055) (6,539) Principal payments on capital lease obligations (239) (274) (201) Proceeds from sale of common stock and stock options and warrants exercised, net 232 1,394 13 Purchase and retirement of treasury stock and warrants -- (6,100) -- Sale of treasury stock -- -- 8 ------- ------- ------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 4,622 (8,475) (5,579) ------- ------- ------- NET INCREASE (DECREASE) IN CASH 3,769 (477) (283) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,113 1,590 1,873 ------- ------- ------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 4,882 $ 1,113 $ 1,590 ======= ======= ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for: Interest $ 1,446 $ 1,240 $ 1,219 Income taxes 2,373 2,116 2,583 SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Accounts receivable transferred to long- term notes receivable and other assets $ 478 $ 1,912 $ 1,871 Employee stock ownership plan obligations 526 302 379 Non-cash equity investments in affiliates -- 108 819 Notes receivable from sales of retail stores -- -- 83 Accounts payable transferred to long-term debt -- 6,000 -- Non-cash acquisition of company-owned retail stores -- 187 -- Inventories received in satisfaction of long-term notes receivables 454 -- -- Common stock issued as unearned compensation 520 -- -- Property and equipment purchased by issuance of long-term debt 2,767 -- -- Sale of assets through assumption of related debt 4,078 -- --
-See notes to consolidated financial statements.- 42 BIG O TIRES, INC. ----------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 ---------------------------------------------------- 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES: Operations ---------- The Company is the franchisor of Big O Tire stores and sells tires, wheels, and related products directly to franchised Big O dealers ("Franchisees"), to licensees in Canada and to retail customers at its Company owned retail tire stores. The Company is active in promoting certain programs and sales techniques to its Franchisees. Under a Franchise Agreement, the Company grants the right to operate a retail tire store using the Big O trademarks, service marks and associated logos and symbols in exclusive marketing territories. Depending on certain qualifications, the initial franchise fee ranges from $7,000 to a maximum of $21,000. Assignment or transfer of a Franchise Agreement provides a transfer fee of up to $21,000. Initial franchise fees are deferred and recognized when all material services or conditions relating to the sale or transfer of the franchise have been substantially completed. The Franchisees must also pay the Company a continuing royalty fee of 2% based upon the Franchisees' monthly gross sales as that term is defined in the Franchise Agreement. Continuing royalty fees are recognized when the fees are earned and become receivable from the Franchisee. The initial franchise and royalty fees included in sales were $6,772,000, $6,116,000 and $5,856,000 for 1994, 1993 and 1992, respectively. The Franchise Agreement also allows for the Company to collect a 1% fee to be used for national advertising; however, this fee is currently limited to $.10 for each Big O brand tire purchased from the Company. One member of the Company's Board of Directors had ownership of or interests in thirty-one (31) Big O Retail Stores during 1994 and 1993, and two members of the Company's Board of Directors had ownership of or interests in twenty-seven (27) Big O Retail Stores in 1992. Three officers of the Company each had ownership interests in a Big O Retail Store during 1994, two officers each had an ownership interest in a Big O Retail Store in 1993, and one officer had an ownership interest in a Big O Retail Store in 1992. Sales to these stores were approximately $9,372,000, $8,122,000, and $9,176,000 during 1994, 1993 and 1992, respectively. These sales were made under the same terms and conditions as those with unrelated parties. As of December 31, 1994 and 1993, outstanding accounts and notes receivable from these stores totalled $803,000 and $1,609,000, respectively. The Company has also provided equipment lease guarantees to certain of these stores totalling $531,000 at December 31, 1994. During 1993, an officer of the Company purchased real property from a joint venture in which the Company holds a 50% interest. The sale resulted in a pretax gain of $38,000 for the joint venture. Significant Accounting Policies: ------------------------------- Consolidation and Reclassifications - All significant majority-owned subsidiaries are consolidated and all significant intercompany transactions are eliminated. Certain reclassifications have been made to 1993 and 1992 financial information to make the presentation consistent with that of the current year. These reclassifications had no impact on net income. Cash - Cash and cash equivalents include time deposits, certificates of deposit and marketable securities with original maturities of three months or less. At December 31, 1994 cash in the amount of $4,228,000 was restricted for use by the Company for the acquisition of the Las Vegas distribution center which was under construction. 43 Inventories - Inventories consist of finished goods only. New and recapped tire inventories of Big O Tire of Idaho, Inc. ("Idaho"), a subsidiary of the Company, and the inventories purchased pursuant to the November 1988 Kentucky and Indiana merger (see Note 2), are valued at the lower of last-in, first-out (LIFO) cost or market. All other inventories are valued at the lower of first-in, first-out (FIFO) cost or market. Inventories of $4,657,000 and $3,864,000 at December 31, 1994 and 1993, respectively, are valued at LIFO. Under the FIFO method of inventory valuation, these inventories would have been approximately $44,000 and $341,000 higher at December 31, 1994 and 1993, respectively. Property, Plant and Equipment - Property, plant and equipment are carried at cost. Depreciation is computed using the straight-line and double declining balance methods over estimated useful lives of the assets ranging from three to 40 years. Ordinary maintenance and repairs are charged to operations, while expenditures which extend the physical or economic life of property and equipment are capitalized. Gains and losses on disposition of property and equipment are recognized in operations in the year of disposition and the related asset and accumulated depreciation accounts are adjusted accordingly. Intangible Assets - Distribution rights, which represent the excess purchase cost over the fair market value of net assets acquired in certain mergers and acquisitions (see Note 2) are capitalized and are being amortized by charges to operations on a straight line basis over 40 years. Warranty Reserve - The Company maintains a reserve for future warranty claims on Big O brand tires based on historical experience. Earnings Per Share - Earnings per share is computed using the weighted-average number of outstanding shares during each period presented. Inclusion of common stock equivalents did not have a material effect on the computation. 2. ACQUISITIONS AND MERGERS: In November 1988 the Company acquired Big O Tire of Louisville, Inc. ("Louisville") at a cost of $3,031,000. Louisville had the distribution rights to the Kentucky and Indiana market of 24 Big O Retail Stores. The Company issued 204,200 shares of its common stock and paid $1,443,000 in cash for this acquisition. The stock was valued at $7.70 per share which approximated management's estimate of the market value of such unregistered shares as of the date of the transaction. In accordance with the purchase method of accounting, the purchase price was allocated to the net assets acquired based on fair values at the date of acquisition with $1,114,000 being assigned to distribution rights and $600,000 to a non-compete agreement. In connection with this acquisition, the Company also had an obligation to provide additional securities, or obtain the return of a portion of those securities, based upon the trading price of the Company's common stock at specified dates through November 1994. In August 1990 the Company modified the agreement with the former shareholders of Louisville whereby the Company guaranteed that the former shareholders would receive, under certain circumstances, a value of $25.00 per share (subject to adjustment depending on when payment is received) from the sale of the Big O common stock issued to them in connection with the acquisition of Louisville, and the former shareholders provided the Company with an option of paying cash in lieu of issuing additional securities pursuant to this obligation. In 1993 and 1992, cash payments of $788,000 and $501,000, respectively, were made to the former shareholders of Louisville under the terms of this obligation which were capitalized as additional costs of distribution rights. In June 1993, the Company completed an equity offering which included the sale of 81,667 shares of Big O common stock held by 44 the former shareholders of Louisville. With the sale of this stock and the cash payment of $788,000, the Company's obligation to the former shareholders was fully satisfied. 3. JOINT VENTURES: In August 1992 the Company sold its interest in a joint venture involving a wholly owned subsidiary, Big O Distributors, Inc. (Distributors) and received a five-year promissory note for $231,000 in exchange for its interest. The Company incurred a loss of approximately $73,000 on the sale. Although the buyer, Aspen Enterprises, Inc., is now primarily responsible for obligations under the building lease, Distributors remains liable through 1996 for up to $287,000 in future rentals if the joint venture defaults. These future rents are not included in the future minimum rental payments disclosed in Note 8. Prior to 1992 the Company and one of its subsidiaries, Big O Development, Inc. (Development), entered into three separate joint venture agreements with independent parties for the purpose of developing real estate sites for Big O Retail Stores. The Company accounts for its 50% investment in these joint ventures using the equity method. During 1993, the Company acquired the remaining 50% interest in one of the joint ventures at a cost of $266,000. The joint venture was then liquidated and the net assets were transferred to Development. At December 31, 1994 and 1993, $573,000 and $467,000, respectively, were recorded as investments in these joint ventures including $9,000 in pretax loss for 1994 and $10,000 and $23,000 in net pretax income for 1993, and 1992, respectively. In 1993 and 1992, the Company and one of its subsidiaries, Big O Retail Enterprises, Inc., entered into separate joint venture agreements with five of its franchisees to operate retail stores in Arizona, California, Colorado, and Wyoming. Generally, the Company contributed inventories in the amount of $55,000 and guaranteed certain financing arrangements in exchange for a 50% interest in each joint venture. 4. SALES AND CLOSURES OF RETAIL STORES: In 1994, the Company sold five retail stores for cash and notes. Assets with a net book value of $765,000 were sold for $648,000 resulting in a pretax loss of $117,000. The Company also closed four retail stores. In connection with the closure of these stores and the estimated future lease costs associated with two additional closed locations, one time charges of $989,000 were accrued to cover estimated closing and future lease costs. In 1993, the Company sold five retail stores to franchisees for cash and notes. Assets with a net book value of $798,000 were sold for $648,000, resulting in a pretax loss of $150,000. The Company also closed one retail store. In connection with this closure and the estimated future lease costs associated with three other closed locations, one time charges of $279,000 were accrued to cover estimated closing and future lease costs. In 1992, the Company sold four retail stores to a franchisee for a promissory note. Inventories, property, equipment and other assets with a net book value of $481,000 were sold for $612,000. Because the transaction was considered a highly leveraged transaction, it has not been recorded as a sale of assets, and no gain has been recognized during 1994, 1993 or 1992. The note receivable arising from the transfer of assets has been reflected in the financial statements as other assets, net of the deferred gain of $131,000. 45 5. NOTES RECEIVABLE: Notes receivable at December 31, 1994 and 1993, consisted of the following (in thousands):
1994 1993 ---------- ---------- 6.0% to 12.0% notes receivable from franchisees (including related parties in 1993) from the sale of Company-owned retail stores, substantially all of which are collateralized by inventories, equipment, receivables and franchise rights, due in monthly installments plus interest (see Note 4). $ 1,432 $ 2,053 8.0% to 11.25% notes receivable from franchisees, for inventories and equipment, substantially all of which are also collateral, due in monthly installments plus interest. 1,599 3,332 6% note receivable due from a vendor for returned inventories, which are also collateral, due in monthly installments plus interest. 187 613 9.25% to 10% notes receivable from sale of real properties, collateralized by said properties, due in monthly installments plus interest. 494 213 8% note receivable from sale of joint venture interest, collateralized by inventories and equipment, due in monthly installments plus interest. -- 184 Other - primarily 8% to 11% notes receivable from various entities, majority are without collateral, maturing at various dates. 214 221 ------- ------- 3,926 6,616 Less current portion 733 993 ------- ------- Long-term portion $ 3,193 $ 5,623 ======= =======
46 6. LONG-TERM DEBT: Long-term debt at December 31, 1994 and 1993, consisted of the following (in thousands):
1994 1993 ------- ------- Prime rate (8.5% at December 31, 1994) plus 1/2% revolving credit loan, with an annual facility fee of $19,000, collateralized by receivables and inventories, with a maximum borrowing of up to $12,000,000 (limited to a portion of eligible collateral and further reduced by the amount of any outstanding letters of credit issued by the lender on behalf of the Company). This loan was replaced by a new credit facility on January 23, 1995. (a) $ 2,985 $ -- Prime rate plus 1% term loan paid in April 1994. -- 2,000 8.71% senior loan, collateralized by certain real estate, interest only due in quarterly installments through July 1998, then principal due in quarterly installments of $333,000 plus interest through May 2004. 8,000 -- Prime rate credit loan, without collateral, due in monthly principal installments of $115,000 plus interest through September 1995, $125,000 plus interest through September 1996, and $135,000 plus interest through October 1997, balance due November 1997. (b) 4,355 5,600 Prime rate mortgage loan, collateralized by deed of trust, due in monthly installments of $8,000 plus interest through September 2001. 1,475 -- Prime plus 2.25% mortgage loan, collateralized by a deed of trust, due in monthly installments of $4,000 through July 2004. 412 -- 8.0% mortgage loan, collateralized by deed of trust, interest and principal due January 1995. 312 -- 8.0% mortgage loan, collateralized by deed of trust, interest and principal due April 1995. 200 -- 9.5% mortgage loan, collateralized by a deed of trust, due in monthly installments of $25,000 through January 2000, balance due February 2000. (c) -- 2,804 10.08% mortgage loan, collateralized by a deed of trust, principal and interest due in monthly installments of $5,000 through April 1997, balance due April 1997. (c) -- 485 10.65% mortgage loan paid in April 1994. -- 1,740
47
1994 1993 ------- ------- 8% mortgage loan paid in February 1994. -- 335 8% mortgage loan paid in April 1994. -- 225 Other 33 42 ------- ------- 17,772 13,231 Less current portion 2,033 2,448 ------- ------- Long-term portion $15,739 $10,783 ======= =======
(a) The amount of borrowing availability for the line of credit is determined by application of a predefined formula to the collateral base on a weekly basis. The ranges of permitted borrowings for 1994, 1993 and 1992 were as follows (in thousands):
1994 $7,160 - $12,000 1993 $6,862 - $12,000 1992 $8,976 - $ 9,800
In October 1991, the Company executed a Loan and Security Agreement with its primary lender that provided a revolving line of credit of $12,000,000 (which was limited to a portion of eligible collateral and was further reduced by the amount of any outstanding letters of credit issued by the lender on behalf of the Company) and a term loan of $3,000,000. Interest was computed on the outstanding borrowings at the prime rate plus 1/2% on the line of credit and at the prime rate plus 1% on the term loan. The credit facility was collateralized by receivables, inventories, equipment and certain real estate. The agreement contained various covenants and restrictions (including a restriction which precludes the payment of cash dividends or the return of capital to shareholders) with which the Company was in compliance at December 31, 1994. In January 1995, the Company executed a Revolving Credit Agreement with another primary lender which provides a revolving line of credit of $20,000,000 (which is limited to a portion of eligible collateral and is further reduced by the amount of any outstanding letters of credit issued on behalf of the Company). This credit facility replaced the previous credit agreement and the borrowings under the previous agreement were repaid. (b) Interest rate reductions of up to 2.5% may be earned by meeting certain purchase requirements defined in the lending agreement. (c) In 1994 the Company sold the real property collateralizing these mortgage loans. Under the terms of the transactions, the new owners assumed the mortgage liability. The Company has guaranteed the loans. The annual maturities of long-term debt for succeeding years are as follows (in thousands):
1995 $ 2,033 1996 (d) 4,630 1997 1,533 1998 786 1999 1,445 Due thereafter 7,345 ------- $17,772 =======
(d) Includes $2,985,000 outstanding under a line of credit which was replaced in January 1995 with a credit facility which matures January 1998. 48 7. CAPITAL LEASES: The Company leases certain equipment and a building under capital lease arrangements. Leased assets under these arrangements at December 31, 1994 and 1993 were as follows (in thousands):
Accumulated Cost Amortization Net ------ ------------ ---- 1994: ----- Building and leasehold improvements $ 125 $ 70 $ 55 Equipment 144 89 55 ------ ---- ---- $ 269 $159 $110 ====== ==== ==== 1993: ----- Building and leasehold improvements $ 125 $ 64 $ 61 Equipment 875 584 291 ------ ---- ---- $1,000 $648 $352 ====== ==== ====
At December 31, 1994, future minimum lease commitments under these leases for succeeding years were as follows (in thousands):
1995 $ 70 1996 70 1997 58 1998 34 1999 34 Due thereafter 126 ---- Total minimum lease payments 392 Less amount representing interest 192 ---- Present value of net minimum lease payments 200 Less current portion 33 ---- Long-term portion $167 ====
8. OPERATING LEASES: The Company's operating leases are primarily for real property. Rental expense for the years ended December 31, 1994, 1993 and 1992 was $1,218,000, $1,253,000 and $765,000 respectively after deducting sublease income of $1,571,000 for 1994, $1,448,000 for 1993 and $1,618,000 for 1992. 49 Future minimum rental payments required under these leases for succeeding years are as follows (in thousands):
1995 $ 2,845 1996 2,785 1997 2,514 1998 1,829 1999 1,522 Due thereafter 4,230 ------- 15,725 Less sublease income 10,098 ------- $ 5,627 =======
The Company is contingently liable for future rentals on a building lease currently occupied by a former joint venture partner (See Note 3). In the event of a default, the Company remains liable for up to $287,000 in future rentals. These future rents are not included in the future minimum rental payments above. Certain lease agreements provide the Company with the option to purchase the leased property at its fair market value at the end of the lease term. Additionally, certain lease agreements contain renewal options ranging from five to fifteen years with terms similar to the original lease agreements. In November 1988 the Company received a distribution of its interest in the Ontario, California distribution center from the limited partnership and subsequently sold its interest to an unrelated third party. As part of this transaction, the distribution center's ten year lease was also transferred, resulting in a sale-leaseback. The Company's share of the gain on the sale of the property is being deferred and amortized over the remaining lease term. 9. INCOME TAXES: The Company adopted Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" (SFAS No. 109) as of January 1, 1993. SFAS No. 109 is an asset and liability approach that, among other provisions, requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. In estimating future tax consequences, SFAS No. 109 generally considers all expected future events other than enactments or changes in the law or rules. The total cumulative effect of adopting SFAS No. 109 is an increase in deferred tax liabilities of $285,000 at January 1, 1993 and has been reported as a charge against income in the 1993 consolidated statement of income. The tax effects of temporary differences which give rise to the deferred tax assets and liabilities as of December 31, 1994 and 1993 are as follows (in thousands):
1994 1993 ------ ------ Deferred Tax Assets: Allowance for doubtful accounts not currently deductible $ 325 $ 405 Inventory reserves not currently deductible 198 104 Inventory basis differences 44 -- Accruals not currently deductible 208 102 Warranty reserves not currently deductible 1,499 1,267 Other reserves not currently deductible 474 453
50
1994 1993 ------ ------ Compensation under stock option plan not currently deductible 207 155 Differences between book and tax recognition of gain on sales of property 93 58 Property and equipment basis differences -- 26 Investment basis differences 106 93 ------ ------ $3,154 $2,663 ====== ====== Deferred Tax Liabilities: Prepaid expenses deductible for tax purposes $ 216 $ 49 Accelerated tax depreciation and amortization 604 648 Property and equipment basis differences 43 -- Intangible assets not currently deductible 165 175 Inventory basis differences -- 27 ------ ------ $1,028 $ 899 ====== ====== Net deferred tax asset $2,126 $1,764 Non-current deferred tax liability -- 38 ------ ------ Current deferred tax asset $2,126 $1,802 ====== ======
The following is a summary of the income tax provision for the years ended December 31, 1994 and 1993 under SFAS No. 109 (in thousands):
1994 1993 ------ ------ Currently payable $2,197 $1,921 Deferred expense (361) (579) Tax benefit of exercise of stock options 114 58 ------ ------ Total income tax provision $1,950 $1,400 ====== ======
51 The following is a summary of the income tax provision for the year ended December 31, 1992, under the Company's former method of accounting for income taxes (in thousands):
1992 ------ Current Federal $1,837 State 438 Deferred Federal (236) State (56) ------ Total $1,983 ======
The net deferred income taxes charged to operations at December 31, 1992 consist of the following (in thousands):
1992 ------ Installment sales $(163) Depreciation 17 Reserve for warranty claims (117) Reserve for bad debts (19) Stock compensation 15 Inventory costs (28) Deferred gain on property purchased from affiliate 3 ----- $(292) =====
A reconciliation of the provision for income taxes to the statutory Federal tax rate of 34% on income before income taxes is as follows (in thousands):
1994 1993 1992 ------ ------ ------ Tax at statutory rate $1,578 $1,115 $1,620 State taxes, net of Federal tax benefit 248 177 252 Depreciation and amortization not deductible for tax purposes 91 87 104 Other 33 21 7 ------ ------ ------ $1,950 $1,400 $1,983 ====== ====== ======
10. EMPLOYEE STOCK OWNERSHIP PLAN: The Company has an employee stock ownership plan ("ESOP") in which all non- retail employees, 18 years of age or older and having 1,000 hours of service in a fiscal year, are eligible to participate. The ESOP generally provides for 20% vesting after three years of service with an additional 20% each year of service thereafter, until a participant is 100% vested. Annual contributions are at the discretion of the Board of Directors, subject to the ESOP provision that the Company is required to make contributions equal to principal and interest payments on debt issued by the ESOP to acquire securities. Contributions recorded in 1994, 1993 and 1992 were $357,000, $697,000 and $664,000, respectively. 52 In 1991, the ESOP purchased 461,008 shares of the Company's $.10 par value common stock from four of the Company's shareholders at market value in exchange for cash and notes. In 1993, the ESOP refinanced the remaining three notes with a new note payable in five annual installments of principal and interest fixed at 9.0%. The Company's financial statements at December 31, 1994 and 1993 reflect the ESOP's obligations as a liability and a corresponding reduction of shareholders' equity. 11. SHAREHOLDERS' EQUITY: Shareholder Rights Plan - In August 1994, the Board of Directors adopted a shareholder rights plan and declared a dividend of one right for each outstanding share of the Company's common stock. Each right entitles the shareholder to purchase from the Company one share of the Company's common stock at a discounted price (which varies depending upon the circumstances, determined according to the plan). The rights are not and will not become exercisable unless certain change of control events occur. None of the rights are exercisable as of December 31, 1994. Stock Compensation Plans - In August 1988 the Company adopted the Big O Tires, Inc. Director and Employee Stock Option Plan ("the Option Plan") which allows the Company's directors and employees to forego a portion of their compensation in order to acquire options for the purchase of the Company's common stock in accordance with the provisions of the Option Plan. Options are granted to the participants on January 1 of each year, in an amount equal to the foregone compensation divided by 90% of the fair market value of the Company's $0.10 par value common stock. The remaining 10% of the fair market value then becomes the exercise price of the options. The options are exercisable one year after the grant date and expire ten years after grant. In June 1991 the Company adopted the Big O Tires, Inc. Long Term Incentive Plan ("the Incentive Plan") which allows the Company to make long-term awards of stock options and restricted stock grants to selected officers and employees of the Company and to make long-term awards of stock options to selected directors of the Company. The stock options are generally not exercisable for at least three years following their award date and awards of restricted common stock are subject to vesting requirements. Stock option transactions for the years ended December 31, 1994, 1993 and 1992 are as follows:
1994 1993 1992 ----------------------- ---------------------- ----------------------- Exercise Exercise Exercise Price Options Price Options Price Options ------------- ------- ------------- ------- ------------- ------- Options outstanding at beginning of year $ .32 - 12.25 203,974 $ .32 - 5.16 150,223 $ .32 - 5.00 109,427 Granted 1.48 - 15.44 53,213 1.35 - 12.25 71,336 .48 - 5.16 58,149 Exercised .32 - 12.25 (30,735) .32 - 5.16 (17,348) .32 - 1.06 (17,353) Expired 1.06 (105) .84 - 1.06 (237) -- -- ------- ------- ------- Options outstanding at end of year .32 - 15.44 226,347 .32 - 12.25 203,974 .32 - 5.16 150,223 ======= ======= ======= Options exercisable at end of year .32 - 12.25 77,025 .32 - 1.06 65,848 .32 - 1.06 60,974 ======= ======= =======
53 12. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN: Effective January 1, 1994, the Company adopted a supplemental executive retirement plan ("SERP") which is maintained for the purpose of providing deferred compensation for a select group of highly compensated employees. The 1994 contribution to the SERP was $11,000 and was determined by multiplying the Board approved ESOP contribution rate by the ESOP qualified compensation exceeding $150,000. This plan is unfunded and the contribution was made only for 1994. 13. COMMITMENTS AND CONTINGENCIES: During 1992, the Company entered into an agreement with a lender to provide equipment, inventory and real estate financing to various joint ventures in which the Company was a 50% joint venture partner. The agreement requires the Company and the other joint venture partners to guarantee repayment of the loans. In February 1994, this agreement was amended to provide a total of up to $9,750,000 of real estate financing and up to $2,000,000 for inventory and equipment financing. The Company previously entered into two separate equipment leasing programs for its franchisees with two equipment leasing companies. The Company entered into agreements with these leasing companies which require the Company to pay up to $1,000,000 and $500,000 respectively, under certain franchisee contract defaults. These commitments are collateralized by the leased equipment. In addition, the Company entered into a similar leasing program with another equipment leasing company which does not require a financial guarantee, but does require the Company to assist in the re-marketing of the leased equipment, if necessary. In December 1989 the Company also entered into an agreement with an independent franchise finance company to provide financing to its franchisees for inventories and equipment. This agreement requires the Company to guarantee payment of up to $750,000 under certain franchisee contract defaults. This commitment is collateralized by the inventories and equipment which have been financed and franchise rights. In 1994, the company sold certain notes receivable which had a remaining principal balance of $2,962,000, plus accrued interest, to an investor. In connection with the sale of these notes, the Company executed an Ultimate Net Loss Agreement which limits the Company's guarantee for payment of these notes to fifty percent of the aggregate unpaid balance of the purchased notes at the end of each prior year. No gain or loss was recorded in connection with the sale of these notes, but the Company incurred transaction costs of $55,000. At December 31, 1994 and 1993, the Company had no post-retirement or post- employment benefits which would require the recording of an accrued or contingent liability under the provisions of SFAS No. 106 and No. 112, respectively. 14. FINANCIAL GUARANTEES AND CREDIT RISK: The Company has provided financial guarantees associated with franchisee financing and real estate leases for its franchisees. The guarantees were issued in the normal course of business to meet the financing needs of the Company and its franchisees. However, these financial guarantees represent additional credit risk in excess of the amounts which are already reflected in the balance sheet as of December 31, 1994. 54 The Company's maximum exposure to credit loss in the event of nonperformance by the beneficiaries of the financial guarantees at December 31, 1994 is represented by the contractual amount of the guarantees as indicated below (in thousands):
Mortgage loan guarantees $ 2,769 Franchisee financing guarantees 6,222 Franchisee real estate lease guarantees 4,821 ------- Total $13,812 =======
The financing and lease guarantees are conditional commitments issued by the Company to guarantee the repayment of amounts which are owed to third parties by certain of its franchisees and joint ventures. Most of the financing and lease guarantees extend for more than five years and expire in decreasing amounts through 2002. The credit risk associated with these guarantees is essentially the same as that involved in extending loans to the Company's franchisees or partners. The Company evaluates each franchisee's creditworthiness on an individual basis, and it is the Company's policy to require that sufficient collateral (primarily inventories and equipment) and security interests be obtained by the third parties in connection with the financing and lease obligations (except for real estate obligations) for which the guarantees are issued. There are no cash requirements associated with these guarantees except in the event that an actual financial loss is subsequently incurred by the Company in connection with these guarantees. 15. SIGNIFICANT CONCENTRATIONS OF CREDIT RISK: Although the Company has franchised and Company-owned retail stores located in 18 states, approximately 38% of these stores are located in the State of California, and nearly 33% of the Company's sales were made to the California retail stores. In addition, all of the Company's operations and identifiable assets are attributable to the wholesale and retail marketing of tires and other automotive aftermarket products primarily to franchised, Company-owned (and Canadian licensed) retail stores. Accordingly, the Company's receivables and its guarantees of obligations are concentrated within a single industry segment and a significant portion of its credit risk is also concentrated within a single state. In addition, the Company had receivables and financial guarantees totalling $4,179,000 at December 31, 1994 which were associated with five of its franchisees. 16. AGREEMENTS WITH GENERAL TIRE, INC.: In September 1989, the Company entered into a Master Loan Agreement and a Stock and Warrants Purchase Agreement with General Tire, Inc. ("General"), a related party through May 1993. Under the Master Loan Agreement, General provided the Company with a revolving line of credit of up to $7,500,000 which was collateralized by receivables, inventories and equipment. Under the Stock and Warrants Purchase Agreement, General acquired 400,000 shares of the Company's common stock (approximately 11.4% of the then outstanding shares), and acquired warrants to purchase an additional 1,000,000 shares. In May 1993, the Company and General entered into an agreement which terminated the 1989 agreements, and which resulted in the Company's repurchase of the 400,000 shares of the Company's common stock which had been owned by General, the repurchase and cancellation of the warrants held by General for the purchase of an additional 1,000,000 shares, and the repayment of the outstanding balance of the revolving line of credit in the amount of $1,764,000. 55 17. SHAREHOLDER LITIGATION: In December 1994, the Company and its nine directors were named in two proposed stockholder class action lawsuits each similarly requesting the court to enjoin the sale of the Company to a Dealer-Management Group, enjoin the implementation of the recently adopted shareholder rights plan, obtain specified damages, require the disclosure of the Company's internal forecasts and award plaintiffs' their attorneys' fees and costs, including experts fees. The lawsuits also request that the court order the directors to carry out their fiduciary duties to the plaintiffs and the other members of the class by announcing their intention to cooperate and do all that is necessary to encourage the buyout or takeover of the Company by enhancing the Company's attractiveness as a merger/acquisition candidate, effectively exposing the Company to the marketplace in an effort to create an active action of the Company, act independently and resolve all conflicts of interest in the best interests of the class. If the contemplated transaction with the Dealer-Management Group is consummated, the court is asked to rescind the transaction and, among other actions, award rescissionary damages. The Company moved to dismiss both lawsuits, which have been consolidated, as being frivolous and not in the interests of the stockholders as a class. Counsel for the plaintiffs have filed a motion to dismiss both lawsuits without prejudice. The Company has not received notice that these dismissals have occurred. The Company cannot predict the outcome or the effect, if any, on the Company's financial statements if such litigation continues. 56 EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE NO. ------- ------------------------------------------------------------------------- -------- (3.1) Certificate of Amendment to Restated Articles of Incorporation of Big N/A O Tires, Inc. dated June 10, 1992 and Restated Articles of Incorpora- tion of Big O Tires, Inc. dated August 17, 1987 (incorporated by reference to Exhibit 3 to Quarterly Report on Form 10-Q for quarter ended June 30, 1992). (3.2) Amended and Restated Bylaws of Big O Tires, Inc., a Nevada corpo- N/A ration, as amended, August 26, 1994 (incorporated by reference to Exhibit 2 to Current Report on Form 8-K dated August 26, 1994). (4.1) Rights Agreement dated as of August 26, 1994, between Big O Tires, N/A Inc. and Interwest Co., Inc., as Rights Agent (incorporated by reference to Exhibit 1 to Current Report on Form 8-K dated August 26, 1994). (10.1) 1994 Restatement of Employee Stock Ownership Plan and Trust N/A Agreement of Big O Tires, Inc. (incorporated by reference to Exhibit 10.3 to Big O Tires, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 1994). (10.2) Big O Tires, Inc. Director and Employee Stock Option Plan N/A (incorporated by reference to Exhibit 10.11 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1988). (10.3) First Amendment to the Big O Tires, Inc. Director and Employee N/A Stock Option Plan (incorporated by reference to Exhibit 10.10 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1989). (10.4) Amendment No. 2 to the Big O Tires, Inc. Director and Employee N/A Stock Option Plan (incorporated by reference to Exhibit 10.16 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1992). (10.5) Ultimate Net Loss Agreement between Big O Tires, Inc. and FBS N/A Business Finance Corporation dated January 13, 1989 (incorporated by reference to Exhibit 10.34 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1988). (10.6) Purchase Agreement effective June 30, 1987, and related documents N/A including Promissory Notes, Modification Agreements, Security Agreements, Guaranty Agreement, and Subleases in connection with a purchase by C.S.B. Partnership and three individuals including Ronald D. Asher, of three Big O Franchise Retail Stores in California from Security/Cal, Inc., a wholly-owned subsidiary of the Company, and H.R.I., Inc., a wholly-owned subsidiary of Security/Cal, Inc. (incor- porated by reference to Exhibit 10.63 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1987).
57
(10.7) Purchase Agreement effective November 1, 1987, and related N/A documents including Promissory Notes, Security Agreements, Guaranty Agreements, Subleases, and Franchise Agreements in connection with a purchase by C.S.B. Partnership and its three general partners, including Ronald D. Asher, of two Big O Franchise Retail Stores in California from Security/Cal, Inc. and H.R.I., Inc. (Seller) (incorporated by reference to Exhibit 10.45 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended Decem- ber 31, 1988). (10.8) Purchase Agreements effective July 5, 1988, October 1, 1988, and N/A November 14, 1988, and related documents including Promissory Notes, Security Agreements, Guaranty Agreements, and Subleases in connection with a purchase by C.S.B. Partnership and three individuals including Ronald D. Asher of three Big O Franchise Retail Stores in California from Big O Tires, Inc., Security/Cal, Inc., a wholly-owned subsidiary of the Company, and H.R.I., Inc., a wholly- owned subsidiary of Security/Cal, Inc. (incorporated by reference to Exhibit 10.46 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1988). (10.9) Agreement and Release dated October 31, 1989, and related N/A documents including Promissory Note, related Subleases, Assignment of Lease Rights, and Performance Guarantee in connection with the purchase by C.S.B. Partnership and its general partners, including Ronald D. Asher, of two (2) Big O franchise Retail Stores in California, owned by GEM Tire, Inc. from the Company (incorporated by reference to Exhibit 10.57 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1989). (10.10) Ultimate Net Loss Agreement, dated as of December 1, 1990, by and N/A between Big O Tires, Inc. and Northcross Financial Services, Inc., ICON Capital Corp., in its individual capacity and on behalf of ICON Cash Flow Partners, L.P., Series A, ICON Cash Flow Partners, L.P., Series B and any future partnerships on which it may be the general partner and/or manager (incorporated by reference to Exhibit 10.70 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1990). (10.11) Loan and Security Agreement dated October 15, 1991, with its N/A primary lender together with exhibits and appendices (incorporated by reference to Exhibit 10.57 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1991). (10.12) Assignment for Security (Trademarks and Trademark Licenses), dated N/A October 15, 1991, providing collateral assignment of Big O Tires, Inc.'s and its subsidiaries' trademark and trademark licenses to its primary lender (incorporated by reference to Exhibit 10.58 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1991).
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(10.13) Stock Pledge Agreement dated October 15, 1991, whereunder Big O N/A Tires, Inc. pledged stock holdings of its subsidiary companies to its primary lender (incorporated by reference to Exhibit 10.59 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1991). (10.14) Continuing Guaranty Agreement dated October, 15, 1991, providing N/A the guarantee by certain of Big O Tires, Inc.'s subsidiary companies for the obligations of Big O Tires, Inc. under the Loan and Security Agreement with its primary lender (incorporated by reference to Exhibit 10.60 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1991). (10.15) First Amendment to Loan and Security Agreement, dated as of N/A November 18, 1991, with its primary lender (incorporated by reference to Exhibit 10.62 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1991). (10.16) Deed of Trust, Assignment of Rents, Security Agreement and Fixture N/A Filing dated as of November 19, 1991, for the benefit of its primary lender, which now enjoys a first lien position on Big O Tires, Inc.'s Vacaville, California Regional Sales and Service Center (incorporated by reference to Exhibit 10.65 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1991). (10.17) Secured Promissory Note dated April 3, 1992, in the original principal N/A amount of $3,000,000, payable to the order of its primary lender, which evidences Big O Tires, Inc.'s $3,000,000 term loan facility (incorporated by reference to Exhibit 10.67 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1991). (10.18) 1994 Incentive Bonus Plans (incorporated by reference to Exhibit N/A 10.43 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1993). (10.19) Agreement of Joint Venture of Big O/C.S.B. Joint Venture dated as of N/A June 1, 1992, by and between Big O Retail Enterprises, Inc., a wholly-owned subsidiary of Big O Tires, Inc., and C.S.B. Partnership, a California general partnership (incorporated by reference to Exhibit 10.70 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1991). (10.20) Amendment No. 1 to Agreement of Joint Venture of Big O/C.S.B. N/A Joint Venture dated as of May 15, 1993 (incorporated by reference to Exhibit 10.27 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1993). (10.21) Purchase Agreement for Private Brand Name Tires between Big O N/A Tires, Inc. and The Kelly-Springfield Tire Co., dated August 16, 1992 (incorporated by reference to Exhibit 10.71 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1991).
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(10.22) Big O Tires, Inc. Long Term Incentive Plan (incorporated by N/A reference to Exhibit 55 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1992). (10.23) Amendment No. 1 to Big O Tires, Inc. Long Term Incentive Plan N/A (incorporated by reference to Exhibit 56 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1992). (10.24) Amendment No. 2 to Big O Tires, Inc. Long Term Incentive Plan N/A (incorporated by reference to Exhibit 57 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1992). (10.25) Agreement of Joint Venture of Big O/S.A.N.D.S. Joint Venture N/A (incorporated by reference to Exhibit 58 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1992). (10.26) Commitment Letters dated July 22, 1992, from AT&T Capital N/A Corporation (incorporated by reference to Exhibit 64 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1992). (10.27) Agreement dated as of November 15, 1992, among Peerless Trading N/A Company, Limited, Delaware Liquidators, Inc. dba Trade Center Imports, and Big O Tires, Inc.; Purchase Money Non-Negotiable Promissory Note dated as of November 15, 1992, from Peerless Trading Company, Limited to Big O Tires, Inc.; and amendment dated January 19, 1993 to the Agreement dated November 15, 1992 (incorporated by reference to Exhibit 66 to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1992). (10.28) Marketing Agreement for Private Brand Tires between Big O Tires, N/A Inc. and General Tire, Inc., dated May 14, 1993 (incorporated by reference to Exhibit 10.1 to Big O Tires, Inc.'s Current Report on Form 8-K dated April 30, 1993). (10.29) Closing Agreement between General Tire, Inc. and Big O Tires, Inc., N/A dated May 14, 1993 (incorporated by reference to Exhibit 10.2 to Big O Tires, Inc.'s Current Report on Form 8-K dated April 30, 1993). (10.30) Second Amendment to Loan and Security Agreement by and among N/A its primary lender and Big O Tires, Inc., Big O Retail Enterprises, Inc. and Big O Tire of Idaho, Inc., dated May 14, 1993 (incorporated by reference to Exhibit 10.3 to Big O Tires, Inc.'s Current Report on Form 8-K dated April 30, 1993). (10.31) Inventory Financing Agreement between The Kelly-Springfield Tire N/A Company and Big O Tires, Inc. and/or Big O Tire of Idaho, Inc. and/or Big O Retail Enterprises, Inc., dated May 14, 1993 (incorporated by reference to Exhibit 10.4 to Big O Tires, Inc.'s Current Report on Form 8-K dated April 30, 1993).
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(10.32) Demand Note in the original principal amount of $6,000,338.67 with N/A The Kelly-Springfield Tire Col. as Holder and Big O Tires, Inc., Big O Retail Enterprises, Inc. and Big O Tire of Idaho, Inc. as Maker (incorporated by reference to Exhibit 10.50 to Big O Tires, Inc.'s Annual Report on Form 10-K dated April 30, 1993). (10.33) Purchase Agreement by and among Tire Brands, Inc. and Big O N/A Tires, Inc., dated as of April 30, 1993 (incorporated by reference to Exhibit 10.5 to Big O Tires, Inc.'s Current Report on Form 8-K dated April 30, 1993). (10.34) Consolidation and Modification Agreement among Big O Tires N/A (successor in interest to H.R.I., Inc. and Security/Cal, Inc.) and Big O Retail Enterprises, Inc. and C.S.B. Partnership (incorporated by reference to Exhibit 10.51 to Big O Tires, Inc.'s Registration Statement No. 33-65852). (10.35) Modification of Consolidation and Modification Agreement by and N/A between C.S.B. Partnership and Big O Tires, Inc. (incorporated by reference to Big O Tires, Inc.'s Form 10-K for the year ended December 31, 1993). (10.36) Registration Rights Agreement dated June 28, 1993, between the N/A Selling Shareholder and Big O Tires, Inc. (incorporated by reference to Exhibit 10.52 to Big O Tires, Inc.'s Registration Statement No. 33- 65852). (10.37) Loan Agreement and Promissory Note in the original principal amount N/A of $155,000.00 with C.S.B. Partnership as Maker (incorporated by reference to Exhibit 10.44 to Big O Tires, Inc.'s Form 10-K for the fiscal year ended December 31, 1993). (10.38) Loan Agreement and Promissory Note in the original principal amount N/A of $70,000.00 with Big O/C.S.B Joint Venture as Maker (incorporated by reference to Exhibit 10.45 to Big O Tires, Inc.'s Form 10-K for the fiscal year ended December 31, 1993). (10.39) Loan Agreement and Promissory Note in the original principal amount N/A of $75,000.00 with Big O/S.A.N.D.S. Joint Venture as Maker (incorporated by reference to Exhibit 10.46 to Big O Tires, Inc.'s Form 10-K for the fiscal year ended December 31, 1993). (10.40) Commercial Note and Loan Agreement, Commercial Mortgage and N/A Environmental Certificate between Big O Development, Inc. and National City Bank, Kentucky, and Guaranty Agreement of Big O Tires, Inc. guaranteeing the obligations of Big O Development, Inc. to National City Bank, Kentucky in connection with the borrowing of $1,500,000 for construction of the Company's Regional Sales and Service Center in New Albany, Indiana (incorporated by reference to Exhibit 10.47 to Big O Tires, Inc.s Form 10-K for the fiscal year ended December 31, 1993).
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(10.41) Construction Agreement between Big O Development, Inc. and N/A Koetter Construction, Inc. to construct the Regional Sales and Service Center in Floyd, County, Indiana (incorporated by reference to Exhibit 10.48 to Big O Tires, Inc.'s Form 10-K for the fiscal year ended December 31, 1993). (10.42) Purchase and Sale Agreement and Joint Escrow Instructions by and N/A between Western Realco and Big O Tires, Inc. for the purchase of the Company's Regional Sales and Service Center in Clark County, Nevada (incorporated by reference to Exhibit 10.49 to Big O Tires, Inc.'s Form 10-K for the fiscal year ended December 31, 1993). (10.43) Lease between Big O Tires, Inc. and Simpson Dura-Vent Company, N/A Inc. dated January 24, 1994, for property located at 877 Cotting Court, Vacaville, California and related election of option to accelerate occupation (incorporated by reference to Exhibit 10.51 to Big O Tires, Inc.'s Form 10-K for the fiscal year ended December 31, 1993). (10.44) Letter dated January 26, 1994 from General Tire, Inc. to the N/A Company terminating the Marketing Agreement for Private Brand Name Tires between Big O Tires, Inc. and General Tire, Inc. dated May 14, 1993 (incorporated by reference to Exhibit 10.52 to Big O Tires, Inc.'s Form 10-K for the fiscal year ended December 31, 1993). (10.45) Purchase Agreement by and between Caps Tire Limited Liability N/A Company and Intermountain Big O Realty for the Big O Tires Retail Store located at 8151 East Arapahoe Road, Englewood, Colorado incorporated by reference to Exhibit 10.53 to Big O Tires, Inc.'s Form 10-K for the fiscal year ended December 31, 1993). (10.46) Third and Fourth Amendments to Loan and Security Agreement by N/A and between Big O Tires, Inc. and its primary lender (incorporated by reference to Exhibit 10.54 to Big O Tires, Inc.'s Form 10-K for the fiscal year ended December 31, 1993). (10.47) Limited Partnership Agreement by and between Donald J. Horton, N/A General Partner, Thomas L. Staker, General Partner, and Big O Tires, Inc., Limited Partner, dated as of December 31, 1993 (incorporated by reference to Exhibit 10.56 to Big O Tires, Inc.'s Form 10-K for the fiscal year ended December 31, 1993). (10.48) Loan Agreement and Guaranty, Promissory Note and Security N/A Agreement with Big O Tires, Inc. Employee Stock Ownership Plan ("ESOP") as Borrower, Big O Tires, Inc., as Guarantor, and Key Bank of Wyoming, as Lender, in connection with the refinancing of the ESOP debt in the amount of $960,000 (incorporated by reference to Exhibit 10.57 to Big O Tires, Inc.'s Form 10-K for the fiscal year ended December 31, 1993).
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(10.49) Amendment to Partnership Agreement dated August 25, 1994, by and N/A between Big O Development, Inc., a Colorado corporation, a wholly- owned subsidiary of Big O Tires, Inc. and Mill Creek Associates, Ltd., a Colorado limited partnership (incorporated by reference to Exhibit 10.2 to Big O Tires, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 1994). (10.50) Agreement dated July 1, 1994, by and between General Tire, Inc., an N/A Ohio corporation and Big O Tires, Inc. (incorporated by reference to Exhibit 10.4 to Big O Tires, Inc.'s Quarterly Report on Form 10-Q dated September 30, 1994). (10.51) Consulting Agreement by and between Big O Tires, Inc., and Horst N/A K. Mehlfeldt (incorporated by reference to Exhibit 10.5 to Big O Tires, Inc.'s Quarterly on Form 10-Q dated September 30, 1994). (10.52) Letter Agreement dated January 10, 1995, amending the Consulting N/A Agreement by and between Big O Tires, Inc. and Horst K. Mehlfeldt (incorporated by reference to Exhibit 10.3 to Big O Tires, Inc.'s Current Report on Form 8-K dated January 10, 1995). (10.53) Letter Agreement dated July 12, 1994, by and between Big O Tires, N/A Inc. and PaineWebber Incorporated (incorporated by reference to Exhibit 10.6 to Big O Tires, Inc.'s Quarterly Report on Form 10-Q dated September 30, 1994). (10.54) Letter Agreement dated March 23, 1994, by and between Big O N/A Tires, Inc. and The CIT Group/Equipment Financing, Inc., a New York corporation (incorporated by reference to Exhibit 10.7 to Big O Tires, Inc.'s Quarterly Report on Form 10-Q dated September 30, 1994). (10.55) Ultimate Net Loss Agreement dated October 21, 1994, by and N/A between Big O Tires, Inc. and The CIT Group/Equipment Financing, Inc., a New York corporation (incorporated by reference to Exhibit 10.8 to Big O Tires, Inc.'s Quarterly Report on Form 10-Q dated September 30, 1994). (10.56) Fifth Amendment to Loan and Security Agreement by and between N/A Big O Tires, Inc. and its former lender dated April 29, 1994 (incorporated by reference to Exhibit 10.1 to Big O Tires, Inc.'s Quarterly Report on Form 10-Q dated September 30, 1994). (10.57) Agreement by the Investment Committee of the Board of Directors N/A and the Management/Dealer participants dated September 22, 1994 (incorporated by reference to Exhibit 10.1 to Big O Tires, Inc.'s Current Report on Form 8-K dated December 6, 1994). (10.58) Letter dated September 13, 1994, to the Investment Committee of Big N/A O Tires, Inc. and the Management participants and Dealer representatives (incorporated by reference to Exhibit 10.2 to Big O Tires, Inc.'s Current Report on Form 8-K dated December 6, 1994).
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(10.59) Letter dated February 7, 1995, from the Dealer/Management Group to N/A the Company's Board Chairman (incorporated by reference to Exhibit 10.1 to Big O Tires, Inc.'s Current Report on Form 8-K dated January 10, 1995). (10.60) Agreement between the Company and the Management/Dealer N/A participants dated January 20, 1995 (incorporated by reference to Exhibit 10.2 to Big O Tires, Inc.'s Current Report on Form 8-K (10.61) Form of Franchise Agreement currently in use. 67 (10.62) Multi-Tenant Lease NNN dated December 1, 1994 between Botac VI 122 Leasing L.L.C., a Utah Limited Liability Company and Big O Development, Inc. (10.63) Assignment and Assumption Agreement dated December 2, 1994 by 135 Big O Development, Inc., Big O Tires, Inc. and Botac VI Leasing, L.L.C. and Allstate Life Insurance Company. (10.64) Guarantee Agreement dated December 2, 1994 by Big O Tires, Inc., 145 Big O Development, Inc. and Allstate Life Insurance Company. (10.65) Closing Agreement dated December 2, 1994 by Big O Development, 152 Inc., Big O Tires, Inc., Botac VI Leasing, L.L.C., and Allstate Life Insurance Company. (10.66) Commercial Contract to Buy and Sell Real Estate dated March 17, 159 1994 between Bailey's Moving and Storage and Big O Tires, Inc. (10.67) Confidentiality Agreement dated September, 1994 between Big O 168 Tires, Inc. and Kenneth W. Pavia, Sr. (10.68) Amendment No. 1 to the Big O Tires, Inc. Employee Stock 171 Ownership Plan and Trust Agreement dated September 12, 1994. (10.69) Development Management Agreement dated September, 1994 between 172 Ross Development Management Group, Inc. and Big O Development, Inc. and Big O Tires, Inc. (10.70) Letter Agreement dated February 20, 1995 terminating the Consulting 204 Agreement between Big O Tires, Inc. and Horst K. Mehlfeldt. (10.71) 1995 Incentive Bonus Plans. 205 (10.72) Commitment Letter dated February 16, 1994 between Big O Tires, 234 Inc. and AT&T Commercial Finance Corporation for real estate financing. (10.73) Commitment Letter dated February 16, 1994 between Big O Tires, 251 Inc. and AT&T Commercial Finance Corporation for equipment financing. (10.74) Extension letter dated December 9, 1994 between Big O Tires, Inc. 258 and AT&T Commercial Finance Corporation to extend existing lines of credit through December 31, 1995. (10.75) Resignation letter dated February 27, 1995 from Robert L. Puckett. 259
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(10.76) Resignation letter dated February 24, 1995 from David W. Dwyer. 265 (10.77) Revolving Credit Agreement dated January 23, 1995 between Big O 269 Tires, Inc. and The First National Bank of Chicago. (10.78) Consent, Acknowledgement and Access Agreement dated January 23, 381 1995 between The Bank of Cherry Creek, N.A., Kenneth B. Buckius and The First National Bank of Chicago. (10.79) Note Purchase Agreement dated April 27, 1994 between Big O Tires, 391 Inc. and USG Annuity & Life Company and Republic Western Insurance Company. (10.80) Franchise Agreement dated October 7, 1994 between Big O Tires, 543 Inc. and OK Tires, Inc. for the Retail Store located at 2830 West 3500 South, West Valley City, Utah 84119. (10.81) Franchise Agreement dated November 26, 1993 between Big O Tires, 610 Inc and CAPS Tire Limited Liability Company for the Retail Store located at 8151 East Arapahoe Road, Englewood, Colorado 80112. (10.82) Form of Confidentiality Agreement signed by dealers dated October 670 19, 1994. (10.83) Ultimate Net Loss Agreement dated November 30, 1994, by and 673 between Big O Tires, Inc. and The CIT Group/Equipment Financing, Inc., a New York corporation. (10.84) Inventory Financing Agreement together with a Demand Note dated 681 September 30, 1994, by and between The Kelly-Springfield Tire Company and Big O Tires, Inc., Big O Retail Enterprises, Inc. and Big O Tire of Idaho, Inc. (10.85) Supplemental Executive Retirement Plan dated December 7, 1994, by 688 Big O Tires, Inc., effective January 1, 1994. (10.86) Forms of Stock Appreciation Rights Agreement dated February 15, 696 1995, between Big O Tires, Inc. and the Members of the Chief Executive Office. (10.87) Letter Agreement dated March 24, 1995, regarding severance 714 package, between Big O Tires, Inc. and John E. Siipola. (10.88) Letter Agreement dated March 24, 1995, regarding severance 715 package, between Big O Tires, Inc. and Horst K. Mehlfeldt. (21.1) Big O Tires, Inc. Subsidiaries 716 (25.1) Powers of Attorney executed by each of the Directors of Big O Tires, 717 Inc. (27.1) Big O Tires, Inc.'s Financial Data Schedule. 722
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(99.1) October 31, 1994 press release issued by AKH Company, Inc., a N/A California based retail tire chain, doing business as "Discount Tire Centers" and "Evans Tire Service Centers" (incorporated by reference to Exhibit 99.1 to Big O Tires, Inc.'s Quarterly Report on Form 10-Q dated September 30, 1994). (99.2) November 1, 1994 press release issued by Big O Tires, Inc. N/A (incorporated by reference to Exhibit 99.2 to Big O Tires, Inc.'s Quarterly Report on Form 10-Q dated September 30, 1994).
66 EX-10.61 2 FRANCHISE AGREEMENT EXHIBIT 10.61 BIG O TIRES, INC. FRANCHISE AGREEMENT BIG O TIRES, INC. FRANCHISE AGREEMENT TABLE OF CONTENTS
SUMMARY PAGES i GLOSSARY............................................... iii 1. PARTIES AND RECITALS............................... 1 2. GRANT OF FRANCHISE................................. 1 2.01 Grant of Franchise.......................... 1 2.02 Trade Area.................................. 1 3. FIRST OPTION RIGHTS................................ 1 3.01 First Option Rights......................... 1 3.02 Notification by Big O....................... 2 3.03 Multiple First Option Rights................ 2 3.04 Notification of Qualification............... 2 3.05 Exercise of Option by Franchisee............ 2 3.06 Transfer of First Option Rights............. 2 3.07 Limitation on First Option Rights........... 2 3.08 Expiration of First Option Rights........... 2 4. TERM............................................... 2 4.01 Term........................................ 2 5. RENEWAL: EXTENSION OF FRANCHISE RIGHTS............. 3 5.01 Grant of Successor Franchise Rights......... 3 5.02 Conditions to Grant of Successor Franchise.. 3 5.03 Notification of Non-Renewal................. 3 6. FRANCHISEE'S DEVELOPMENT OBLIGATIONS............... 3 6.01 Financing Approval.......................... 3 6.02 Site Selection.............................. 3 6.03 Equipment and Signage....................... 4 6.04 Conditions to Opening....................... 4 6.05 Commencement of Business.................... 4 7. PRE-OPENING AND ONGOING ASSISTANCE................. 4 7.01 Pre-Opening Assistance...................... 4 7.02 On-Going Assistance......................... 5 8. FEES............................................... 6 8.01 Initial Franchise Fee....................... 6 8.02 Royalty Fee................................. 6 8.03 Late Fees................................... 6 8.04 Taxes....................................... 6 8.05 Allocation of Payments...................... 6 9. LICENSED MARKS..................................... 6 9.01 Licensed Marks.............................. 6 9.02 Limitation on Use........................... 7 9.03 Infringement................................ 7
9.04 Franchisee's Business Name...................... 7 9.05 Change of Licensed Marks........................ 7 10. STANDARDS OF OPERATION................................. 7 10.01 Standards of Operations........................ 7 11. STORE MANAGEMENT....................................... 8 11.01 Store Management............................... 8 11.02 Completion of Training by Operator or Manager.. 8 11.03 Operation of Store by Big O.................... 9 12. QUALITY CONTROL........................................ 9 12.01 Inspections.................................... 9 13. MANUAL: NEW PROCESSES................................. 9 13.01 Manual......................................... 9 13.02 Confidentiality of Information................. 9 13.03 Revisions to Manual............................ 10 13.04 Improvements to System......................... 10 14. PRODUCTS AND SERVICES.................................. 10 14.01 Products and Services.......................... 10 14.02 Approval of Products and Services.............. 10 14.03 Inventory 11 14.04 Warranties and Guaranties...................... 11 14.05 Open Account Financing......................... 11 15. ADVERTISING, MARKETING AND PROMOTIONAL PLANS........... 11 15.01 Initial Advertising............................ 11 15.02 National Advertising Fund...................... 12 15.03 Local Fund..................................... 13 15.04 Approval of Advertising........................ 13 16. STATEMENTS AND RECORDS................................. 13 16.01 Invoices....................................... 13 16.02 Audit.......................................... 13 16.03 Monthly Reports................................ 13 16.04 Financial Statements........................... 13 16.05 Management System.............................. 14 16.06 Regional Accounting Center..................... 14 17. COVENANTS.............................................. 14 17.01 Noncompetition During Term..................... 14 17.02 Confidentiality................................ 14 17.03 No Interference with Business.................. 14 17.04 Post Termination Covenant Not to Compete....... 14 17.05 Survivability of Covenants..................... 15 17.06 Modification of Covenants...................... 15 18. TRANSFER AND ASSIGNMENT................................ 15 18.01 Assignment by Big O............................ 15 18.02 Right of First Refusal......................... 15 18.03 Transfer Legend................................ 15 18.04 Pre-Conditions to Franchisee's Assignment...... 16 18.05 Death of Franchisee............................ 18
18.06 No Waiver.................................. 18 18.07 Excepted Transfers......................... 18 19. DEFAULT AND TERMINATION............................ 18 19.01 Termination by Big O....................... 18 19.02 Governing State Law........................ 20 19.03 Termination by Franchisee.................. 20 19.04 Force Majeure.............................. 20 20. POST TERMINATION OBLIGATIONS....................... 20 20.01 Post-Termination Obligations............... 20 20.02 Right to Repurchase........................ 22 20.03 Right of First Refusal..................... 22 20.04 De-Identification of Assets Upon Sale...... 22 21. INSURANCE.......................................... 22 21.01 Insurance Coverage......................... 22 21.02 Proof of Insurance......................... 23 21.03 Survival of Indemnification................ 24 22. TAXES, PERMITS AND INDEBTEDNESS.................... 24 22.01 Payment of Taxes........................... 24 22.02 Compliance with Laws....................... 24 22.03 Payment of Debts........................... 24 23. INDEMNIFICATION AND INDEPENDENT CONTRACTOR STATUS.. 24 23.01 Indemnification............................ 24 23.02 Independent Contractor..................... 24 24. WRITTEN APPROVALS, WAIVERS AND AMENDMENT........... 25 24.01 Written Approval........................... 25 24.02 Waiver..................................... 25 24.03 Modification............................... 25 25. DEALER PLANNING BOARD.............................. 25 25.01 Dealer Planning Board...................... 25 25.02 Special Interest Issues.................... 25 25.03 Disapproval of Management Proposal......... 25 25.04 Compliance with Modification............... 26 26. RIGHT OF OFFSET.................................... 26 26.01 Right of Offset............................ 26 27. ENFORCEMENT........................................ 26 27.01 Declaratory and Injunctive Relief.......... 26 27.02 Costs of Enforcement....................... 26 28. NOTICES............................................ 26 28.01 Notices.................................... 26 29. GOVERNING LAW...................................... 26 29.01 Governing Law.............................. 26 29.02 Jurisdiction............................... 27
30. SEVERABILITY AND CONSTRUCTION.. 27 30.01 Severability........... 27 30.02 Counterparts........... 27 30.03 Construction........... 27 31. ACKNOWLEDGEMENTS............... 27
Schedule 1 - Premises and Trade Area Schedule 2 - Corporate Verification Schedule 3 - Guaranty Schedule 4 - Lease Rider and Modification Schedule 5 - Farm Class Rider Schedule 6 - Renewal Rider Schedule 7 - Trademarks Schedule 8 - Convertor Rider BIG O TIRES, INC. FRANCHISE AGREEMENT SUMMARY PAGES ------------- These pages summarize the attached Franchise Agreement, the details of which shall control in the event of any conflict. 1. FRANCHISEE: ----------- ------------------------------------------- 2. INITIAL FRANCHISE FEE: Amount Due: --------------------- -with Application: ------------------------- -upon signing Agreement: ------------------- Total: ---------------------------------- 3. ROYALTY FEE Two percent (2%) of Gross Sales ----------- 4. LOCAL ADVERTISING Minimum of four percent (4%) of Gross Sales ----------------- CONTRIBUTION: ------------ 5. NATIONAL ADVERTISING See sections 15 and 25 -------------------- CONTRIBUTION: ------------ 6. INITIAL ADVERTISING REQUIREMENT: ------------------------------- ---------------------------------- 7. STORE LOCATION: -------------- -------------------------------------------------------------------- Street and Number -------------------------------------------------------------------- City, State and Zip Code -------------------------------------------------------------------- Phone Number 8. Franchisee's Operator: ---------------------------------------------- 9. Franchisee's Manager: ----------------------------------------------- 10. Franchisee's Agent For Service of Process: Name: --------------------------------------------------------------- Address: ------------------------------------------------------------ -------------------------------------------------------------------- -------------------------------------------------------------------- 11. Big O's Agent for Service of Process: Name: CT Corporation --------------------------------------------------------------- Address: 1675 Broadway, Suite 1200 ------------------------------------------------------------ Denver, Colorado 80290 -------------------------------------------------------------------- -i- 12. Effective Date: ------------------------------------------------------ 13. Commencement Date: --------------------------------------------------- 14. Expiration Date: ----------------------------------------------------- 15. Franchisee's Advisor: ------------------------------------------------ 16. Send Notices to Big O to: Name: Philip J. Teigen (Legal Department) ---------------------------------------------------------------- Address: Big O Tires, Inc. ------------------------------------------------------------- 11755 E. Peakview Avenue ------------------------------------------------------------- Englewood, Colorado 80111 ------------------------------------------------------------- 17. Send Notices to Franchisee to: Name: ---------------------------------------------------------------- Address: ------------------------------------------------------------- ---------------------------------------------------------------------- ---------------------------------------------------------------------- 18. Business not subject to Section 17 (a) Name: ---------------------------------------------------------------- Address: ------------------------------------------------------------- ---------------------------------------------------------------------- ---------------------------------------------------------------------- 19. Farm Class Franchise: Yes -------------------- No X --------------------- 20. First Option Holder: Name: N/A -------------------------- Address: ----------------------- ----------------------- ----------------------- -ii- GLOSSARY (in alphabetical order) -------- Advertising - The advertising, promotional programs, public relations programs ----------- and marketing programs approved or administered by Big O utilizing the resources of the National Advertising Fund or local franchisee cooperatives or franchisee associations. Agreement - This contract, the Summary Pages and all Riders and Schedules --------- hereto, as interpreted through the Manual. Big O - Big O Tires, Inc. ----- Big O Store or Store - A retail tire store operated pursuant to the Big O -------------------- System. Big O System or System - The plan and system developed by Big O relating to the ---------------------- complete operation of Stores which are authorized to sell Products and Services and offer other authorized tire and automotive services at retail, which include some or all of the following: site selection as required, site approval, Store layout and design, product selection and display, purchasing and inventory control methods, accounting methods, merchandising, advertising, sales and promotional ideas, franchisee training, personnel training, and other matters relating to the efficient operation and supervision of Stores and the maintenance of uniform standards of retail merchandising. Blue II - See the definition of "Manual". ------- Commencement Date - The date upon which the Store opens for business or, in the ----------------- event of transfer, or conversion, the date designated by Big O Tires, Inc. Convertor - A person who converts a retail tire store it owns to a Big O Store --------- pursuant to this Agreement. Dealer Planning Board - The group of franchisee representatives elected from --------------------- each Local Group which meets periodically with Big O's management to develop Big O's strategic plans and to discuss issues of concern to franchisees. The functions of the Dealer Planning Board are described in Section 25 of this Agreement. Development Agreement - An agreement between Big O and a person to which the --------------------- person ("Developer") agrees that within a defined territory to open and commence operating an agreed number of Big O Stores pursuant to a development schedule. Developers must execute Franchise Agreements prior to commencing business at any Store developed pursuant to a Development Agreement. Due Date - The fifteenth day of each month: the date by which all royalty fees -------- and advertising contributions must be postmarked and mailed to Big O. Effective Date - The date upon which the Franchise Agreement has been executed -------------- in full by both the Franchisee and Big O. Expiration Date - The date on which the initial term of the Agreement expires. --------------- Farm Class Store - A Store with twenty-five percent (25%) or more of its average ---------------- Gross Sales during any twelve (12) month period arising directly from the sale of Farm Class Tires. Farm Class Tires - Farm tires, off road tires, large double bead truck tires and ---------------- similar select tires, as may be more specifically defined from time to time by Big O. -iii- First Option - Franchisee's right to acquire a franchise for a new Store planned ------------ for development within a five (5) mile radius of Franchisee's Premises. The First Option and method of exercising it are described in Section 3 of this Agreement. Franchise - The rights granted by the Franchise Agreement. --------- Franchised Business - The business operated pursuant to a license granted by ------------------- Big O which utilizes the Licensed Marks and the Big O System. Franchisee - The individual(s), corporation or other entity to which the ---------- Franchise is granted. Depending on the context of this Agreement, the term Franchisee may include the shareholders or guarantors of a corporate Franchisee. Gross Sales - The aggregate gross amount of all revenues from whatever source ----------- derived whether in form of cash, credit, agreements to pay or other consideration including the actual retail value of any goods or services traded, bartered, or otherwise received by Franchisee in exchange for any form of non- monetary consideration, (whether or not payment is received at the time of sale or any such amount is proved uncollectible) from or derived by Franchisee or any other person from business conducted or which originated in, on, from or through the Premises, whether such business is conducted in compliance with or in violation of the terms of the Franchise Agreement. Gross Sales includes sums paid for claims made on business interruption insurance policies, Federal Excise Taxes collected, as well as payments received from employees of Franchisee for products purchased at a discounted price. However, Gross Sales does not include: (i) sales or use taxes collected by Franchisee; (ii) the amount of any refunds or allowances made on Products and Services returned by customers; (iii) returns to shippers, vendors and manufacturers; (iv) proceeds derived from the sale of equipment or supplies used by Franchisee in the operation of the Store and not acquired for resale; (v) sales of Products and Services to other Big O Stores; (vi) tire disposal fees so long as the fees charged do not exceed the highest fee recommended by any applicable governmental agency; and (vii) sums received in settlement of claims for loss or damage to fixtures, equipment or leasehold improvements, other than sums received from business interruption insurance. Information - The contents of the Manual or any other manual, computer software, ----------- materials, goods, training module and any other proprietary information and information created or used by Big O designated for confidential use within the Big O System, and the information contained therein. Initial Advertising - Advertising conducted within sixty (60) days of the ------------------- Commencement Date to promote the opening of the Store. Licensed Marks - Trademarks and trade names, service marks and associated logos -------------- and symbols owned or sublicensed by Big O, including those enumerated on Schedule 7 and such other marks, logos and names as Big O may designate. Local Fund - The fund, which may be a trust fund, corporation or other entity, ---------- derived from contributions by Big O franchisees who are members of a Local Group which shall be maintained by the Local Group for Advertising pursuant to such guidelines as Big O may approve or prescribe. Local Group - A cooperative or association of Big O franchisees formed and ----------- operating in their marketing area pursuant to a structure approved or prescribed by Big O for the purpose of promoting Big O Stores and their Products and Services, and providing Management Systems and related services to its members to the extent approved by Big O. Big O will assign a Franchisee to a Local Group and Franchisee must become a member of that Local Group and be bound by any decisions it makes to the extent they are approved by Big O. -iv- Management Systems - Computer hardware, software, cash registers, bookkeeping ------------------ and accounting services or systems and other systems designed to provide information for the management of Big O Stores, including but not limited Boss/2/. Manager - An individual other than the Operator who is responsible for the day- ------- to-day operation of a Store. Manager Incentive Contract - An agreement pursuant to which certain Managers may -------------------------- earn purchase credits based upon their performance so that they can acquire Big O franchises from their employer, whether the employer is Big O or a Big O franchisee. Manual - The various written, audio and video instructions and manuals, ------ including amendments thereto relating to the operation of the Franchised Business which are provided to Franchisee by Big O and identified as such, including but not limited to A Blueprint For Success, also known as "Blue II", ----------------------- Big O's Confidential Operating Manual, any training module or any other proprietary information. National Advertising Fund - The fund derived from contributions by Big O ------------------------- franchisees which shall be exclusively maintained and administered by Big O for national Advertising in cooperation with the Dealer Planning Board. National Fund - Big O Tires, Inc. National Advertising Fund. ------------- Operator - The individual approved by Big O who shall be responsible for the -------- operation of the Franchised Business. The Operator may be the Franchisee if the Franchisee is an individual. Option - Big O's right to purchase the interest being offered by the Franchisee ------ or any Shareholder by matching the bona fide monetary purchase price and payment schedule terms of the proposed Transfer, less any brokerage commission (without having to match any other non-monetary terms). Pioneer - A person who owned at least twenty-five percent (25%) equity interest ------- in a Big O franchisee on March 1, 1987, provided such ownership interest appeared on Big O's records as of July 1, 1987. A Pioneer is entitled to acquire Big O franchises for one-third of the applicable initial franchise fee, provided the Pioneer satisfies Big O's other requirements. Premises - The site from which a Franchised Business will be operated at the -------- Store Location described on the Summary Pages, or where applicable, on Schedule 1 to the Franchise Agreement. Products and Services - All tires (including but not limited to Big O's private --------------------- brand lines of tires), products and services produced, organized or distributed under a license granted by Big O, which are designated by Big O for sale or lease in Stores. Regional Accounting Center - A cooperative or association which provides -------------------------- accounting, payroll, tax and related services for the purpose of providing such services at a lower cost and providing the financial reporting Big O requires. Shareholder - Any person possessing a legal or beneficial interest or holding a ----------- share of stock of any kind or nature in the Franchisee, including partners in a Franchisee which is a partnership. Survivor - A surviving spouse or heir of estate of any deceased person owning -------- stock or any other interest in the Franchisee. Termination Date - The date upon which the Franchise Agreement is cancelled or ---------------- ended by Big O or the Franchisee. -v- Trade Area - The area described on Schedule 1 to the Agreement within which, ---------- subject to certain conditions, Big O agrees to limit the number of Stores to one (1) for every fifty thousand (50,000) persons residing therein. Big O may, from time to time, redefine Franchisee's Trade Area. Trade Dress - Any shop or architectural designs, fixtures, improvements, signs, ----------- color schemes or other elements of the appearance of the Store which in any manner suggest affiliation of the Store or Premises with Big O, or the System. Transfer - To give away, sell, assign, pledge, lease, sublease, devise, or -------- otherwise transfer, either directly or by operation of law or in any other manner, the Agreement, any of Franchisee's rights or obligations hereunder, or any interest or shares of stock or partnership interest of any kind or nature in Franchisee or the Premises. The merger or consolidation or issuance of additional securities representing an ownership interest in Franchisee shall also be deemed to be a "Transfer" for purposes of this Agreement. -vi- BIG O TIRES, INC. FRANCHISE AGREEMENT This Franchise Agreement ("Agreement") is made by and between Big O Tires, Inc. ("Big O"), a Nevada corporation, with its principal place of business at 11755 East Peakview Avenue, Englewood, Colorado 80111, and ------------------- ("Franchisee"), a(n) corporation with a place --------------------------------- of business at --------------------------------------------------------------- . ---------------------------------------------------------------------------- 1. PARTIES AND RECITALS 1.01 Big O was established to provide franchisees with access to Products and Services and a System for marketing and servicing such Products and Services. Since its inception, Big O has added to the Product and Services and System to enhance the competitive posture of its franchisees. Big O has developed and owns certain Licensed Marks which are licensed to franchisees for use in the Big O Stores. In connection therewith, Big O has developed the Big O System relating to the operation of Stores which are authorized to offer and sell Big O tires as part of the Products and Services offered to retail customers. 1.02 Franchisee desires, upon the terms and conditions set forth herein, to obtain a license to operate a Franchised Business and to offer and sell Big O Products and Services. Franchisee acknowledges that it is essential to the preservation of the integrity of the Licensed Marks, and the goodwill of Big O and the Big O System, that each franchisee in the System maintain and adhere to certain standards, procedures and policies described hereinafter and in the Manual. 1.03 Big O is willing, upon the terms and conditions set forth herein, to license Franchisee to operate a Franchised Business which will utilize the Licensed Marks and the Big O System. 2. GRANT OF FRANCHISE 2.01 Grant of Franchise. Subject to all of the terms and conditions ------------------ herein, including but not limited to, the condition that Franchisee or its Shareholders or some of them, personally guarantee the obligations of Franchisee to Big O under this Agreement as set forth in Schedule 3 to this Agreement, Big O grants to Franchisee the non-exclusive license to use the Licensed Marks and the exclusive right to operate a Franchised Business solely at the Premises set forth in Schedule 1 to this Agreement. If, at the time of execution of this Agreement, the Premises cannot be designated as a specific address because a location has not been selected by Franchisee and approved by Big O, then Franchisee shall promptly take steps to choose and acquire a location for its Big O Store within the following city, county or other geographical area: ----------------------------------------------------------------------- ("Designated Area"). In such circumstances, ------------------------------ Franchisee shall select and submit to Big O for approval a specific location for the Premises, which shall hereinafter be set forth in Schedule 1. 2.02 Trade Area. During the term of this Agreement, Big O agrees not to ---------- operate itself or grant to any other person the right to operate any more than one (1) Store for every fifty thousand (50,000) persons residing in the Trade Area described on Schedule 1. Big O may, from time to time, redefine the Trade Area. Absent Franchisee's prior approval, Big O shall not permit the establishment or operation of another Store within a two (2) mile radius of Franchisee's Store. Big O shall offer Products and Services bearing the Licensed Marks at retail only through Big O Stores. 3. FIRST OPTION RIGHTS 3.01 First Option Rights. Subject to the conditions described below, if ------------------- Big O or any prospective Big O franchisee should propose to open a Store within a five (5) mile radius of Franchisee's Store, Franchisee shall be notified of its First Option to acquire a Franchise for an additional Store within the five (5) mile radius of its Store. Franchisee may only exercise the First Option if: (a) at the time Big O notifies Franchisee of the proposal for the new Store, Franchisee is in full compliance with all the terms of this Agreement and any other agreements it has with Big O; (b) Franchisee meets Big O's then current criteria for new franchisees; and (c) There are not two (2) or more Big O franchises with Stores within a five (5) mile radius of the site of a proposed new Store. 3.02 Notification by Big O. When notifying Franchisee of a proposal to --------------------- establish a new Store in accordance with Franchisee's First Option, Big O may notify Franchisee of the proposal to establish the new Store within the general vicinity of Franchisee's Store without identifying a specific site or sites. 3.03 Multiple First Option Rights. If two (2) or more Big O franchisees ---------------------------- have Stores within a five (5) mile radius of the site of a proposed new Store, the Franchisee and all such franchisees will be invited simultaneously by written notice from Big O to exercise their First Option rights; but if two (2) or more such franchisees apply for the same franchise, it shall be awarded to the qualified franchisee which has a Store that is closest to the site of the proposed new Store or, if two qualified franchisees have Stores that are equidistant from such site, it shall be awarded to the qualified franchisee which owns the franchised Big O Store which was first licensed as a Big O Store by the current or a previous owner. 3.04 Notification of Qualification. If Franchisee qualifies for the First ----------------------------- Option pursuant to this Section 3, Big O will provide Franchisee with written notice that it has thirty (30) days within which to submit an application for the franchise in the manner prescribed by Big O in the notice. Franchisee must submit the application within the prescribed time along with the standard franchise deposit then required by Big O. Upon approval of the application by Big O, Franchisee must execute Big O's then current standard Franchise Agreement and pay the remainder of any initial fee due. 3.05 Exercise of Option by Franchisee. If Franchisee is a corporation or -------------------------------- partnership, the First Option may be exercised only by the corporation or partnership itself, or by the individual designated as First Option holder on the Summary Pages. 3.06 Transfer of First Option Rights. The First Option is not transferable ------------------------------- without Big O's prior written approval, which may be withheld for any reason, in ---------------------------------------- Big O's sole discretion. ----------------------- 3.07 Limitation on First Option Rights. The First Option rights described --------------------------------- above are void and unenforceable with respect to a site proposed for development in an area which is at the time of the proposal subject to a Development Agreement between Big O and Developer. 3.08 Expiration of First Option Rights. If a Franchisee has failed to --------------------------------- qualify for or otherwise submit an application for a Franchise pursuant to this Section 3 for a proposed franchise to be granted within the area in which Franchisee holds First Option rights, Franchisee's First Option rights for that proposed franchise shall lapse regardless of whether the site actually selected for development by Big O is different from the site which was initially proposed for development. 4. TERM 4.01 Term. This Agreement shall take effect upon the earlier of the ---- Effective Date or of the Commencement Date and, unless previously terminated pursuant to Section 19 hereof, its term shall extend until the earlier of the tenth anniversary of the Commencement Date or such other Expiration Date as is stated on the Summary Pages. - 2 - 5. RENEWAL: EXTENSION OF FRANCHISE RIGHTS 5.01 Grant of Successor Franchise Rights. If Franchisee is not in default ----------------------------------- under this Agreement and has complied with all of its provisions during the initial term, and has cooperated with Big O, its Local Group and other Big O franchisees in programs and suggestions developed by Big O, upon its expiration Big O will offer a successor franchise agreement with Franchisee, provided the parties mutually agree to the terms of a successor franchise at least one hundred eighty (180) days before the Expiration Date. 5.02 Conditions to Grant of Successor Franchise. Big O will only offer to ------------------------------------------ execute a new franchise agreement in accordance with its then current terms and conditions for granting successor franchises, which may include any or all of the following: (a) Execution of a new and modified franchise agreement which may include, among other matters, a different fee structure, increased fees, a modified Trade Area and different purchase requirements; (b) A requirement that Franchisee refurbish the Premises or relocate the Premises to conform to Big O's then current standards for similar Stores; (c) Payment of Big O's renewal administration fee of One Thousand Five Hundred Dollars ($1,500); and (d) Execution of a general release in favor of Big O and its representatives. 5.03 Notification of Non-Renewal. If Big O is willing to execute a new --------------------------- franchise agreement with Franchisee, at least one (1) year before the Expiration Date, Big O shall notify Franchisee of the Expiration Date and the terms and conditions upon which Big O is willing to execute a new franchise agreement with Franchisee. Franchisee must execute a successor franchise agreement within sixty (60) days of its receipt. The Franchise Agreement will expire on the Expiration Date and the franchise relationship will terminate unless Franchisee and Big O have executed a successor franchise agreement at least one hundred eighty (180) days prior to the Expiration Date, and Franchisee has satisfied all other terms and conditions agreed upon as a prerequisite to renewal. If Big O intends not to offer Franchisee a successor franchise agreement, Big O shall give Franchisee at least one hundred eighty (180) days notice of nonrenewal prior to the Expiration Date. If Big O has not given Franchisee at least one hundred eighty (180) days notice of nonrenewal prior to the Expiration Date, the term of this Agreement will automatically be extended by the amount of time necessary to give Franchisee one hundred eighty (180) days notice of nonrenewal. 6. FRANCHISEE'S DEVELOPMENT OBLIGATIONS 6.01 Financing Approval. Unless otherwise agreed to by Big O, Franchisee ------------------ shall obtain a letter of commitment for the provision of financing through a lender approved by Big O and with minimum credit terms, also approved by Big O, no later than one hundred twenty (120) days from the Effective Date of this Agreement. 6.02 Site Selection. Franchisee shall obtain the written approval of Big O -------------- of the site for the Store within one hundred twenty (120) days from the Effective Date of this Agreement. Franchisee shall propose sites for approval by Big O on forms and in the manner designated from time to time by Big O. A proposed site shall only be submitted to Big O for approval after Franchisee has evaluated the site and determined that it meets Big O's then current criteria for sites which Big O has communicated to Franchisee. Franchisee shall be responsible for obtaining Big O's then current site criteria prior to submitting a site approval application. Big O shall review the site approval application - 3 - and within thirty (30) days of Big O's receipt thereof, Big O shall approve or reject the proposed site. Unless otherwise agreed to in writing by Big O, final site approval will be conditioned upon Big O's receipt of evidence of Franchisee's ownership, lease or control of the property in such form as Big O, in its sole discretion shall deem to be acceptable, including, without limitation, a deed to the property, an executed contract to purchase the property, a lease with a duration of not less than ten (10) years, or an option to purchase the property. Franchisee acknowledges and agrees that Big O's approval of a site or provision of criteria regarding the site do not constitute a representation or warranty of any kind, express or implied, as to the suitability of the site for a Big O Store or for any other purpose. Big O's approval of the site indicates only that Big O believes that a site falls within the acceptable criteria established by Big O as of that time. In the case of a Convertor, execution of this Agreement shall be deemed approval of the Store Location by Big O, unless additional obligations to convert or upgrade the premises are described in Schedule 8 to this Agreement. 6.03 Equipment and Signage. Franchisee agrees to purchase, lease or --------------------- otherwise use in the establishment and operation of the Big O Store only those fixtures, equipment, signs and hardware and/or software that Big O has approved as meeting its specifications and standards for quality, design, appearance, function and performance. Franchisee shall purchase or lease approved brands, types or models of fixtures, equipment, and signs only from suppliers designated or approved by Big O. Franchisee agrees to place or display at the Premises only such signs, logos and display materials that Big O approves from time to time. 6.04 Conditions to Opening. Franchisee agrees, at its sole expense, to do --------------------- or cause to be done the following prior to opening the Big O Store for business: (i) secure all required financing; (ii) obtain all required permits and licenses; (iii) construct all required improvements and decorate the Store in compliance with approved plans and specifications; (iv) purchase and install all required fixtures,equipment and signs required for the Big O Store; (v) purchase an opening inventory of tires and supplies; (vi) provide Big O with copies of all required insurance policies, or such other evidence of coverage and payment as Big O requests; and (vii) provide Big O with any other documents as may be required by Big O, including but not limited to financing statements. 6.05 Commencement of Business. Franchisee agrees to open the Big O Store ------------------------ for business within fourteen (14) days after Big O notifies Franchisee that the conditions set forth in this Section 6 have been satisfied. Unless otherwise agreed in writing by Big O and Franchisee, Franchisee has sixteen (16) months from the Effective Date of this Agreement within which to have its Big O Store opened and operating ("Development Period"). Big O will extend the Development Period for a reasonable period of time in the event that factors beyond Franchisee's reasonable control prevent Franchisee from meeting this Development Period, so long as Franchisee has made reasonable and continuing effort to comply with such development obligations and Franchisee requests, in writing, an extension of time in which to have its Big O Store open and operating before the Development Period lapses. 7. PRE-OPENING AND ONGOING ASSISTANCE 7.01 Pre-Opening Assistance. Prior to Franchisee's Commencement Date, ---------------------- Big O shall provide Franchisee with such of the following and on the same basis as it will from time to time provide to similarly situated franchisees of Big O: (a) Assistance to Franchisee related to approval of a site for the Store, although Franchisee acknowledges that Big O shall have no obligation to select or acquire a site on behalf of Franchisee. Big O's assistance will consist of the provision of criteria for a satisfactory site, an on-site inspection and determination of whether a proposed site fulfills the requisite criteria, prior to formal approval of a site selected by Franchisee. At Big O's option, Big O may , - 4 - without fee or expense to Franchisee and review the proposed Store lease. The final decision about whether to acquire a given approved site or whether to execute any particular lease shall be the sole decision of Franchisee. Big O disclaims all liability for the consequences of approving a given site. Big O's participation in site selection in no way is meant to constitute a warranty or guaranty that the Franchised Business will be profitable or otherwise successful. Big O's written approval of the Premises and Store must be obtained by Franchisee before the Store may be opened or relocated. Big O may condition its approval of a Store lease upon Franchisee's execution of a conditional lease assignment in a form which is the same as or similar to the one found on Schedule 4. (b) A prototype floor plan, elevation and equipment layout for the Store, if requested by Franchisee. The plans must be modified by Franchisee's architect or contractor to adapt them to conditions at the Premises and to satisfy all local code requirements. Revisions or modifications to the plans must be approved by Big O. (c) Five consecutive (5) weeks of training for one person in the operation of the Franchised Business at Big O's training facility located in Mesa, Arizona, or another location designated by Big O. Unless Big O waives the training requirement, the Manager of the Franchisee's Store, provided he or she has been approved by Big O, and Franchisee's Operator must attend and successfully complete such training. Franchisee shall pay for its own transportation, lodging, and living expenses which are incurred while attending the initial training program, except that Big O will pay lodging and transportation for the first person to attend the training program. In the event that, in Big O's sole discretion, Franchisee's Operator fails to successfully complete the initial training program, Big O may, in its sole discretion, require Franchisee's Operator to attend and successfully complete another training program or terminate this Agreement and, upon receipt from Franchisee of a general release in a form approved by Big O, refund the initial franchise fee paid by Franchisee, less any amounts necessary to reimburse Big O for the costs it incurred in approving Franchisee and in training Franchisee's Operator and Manager. (d) One (1) copy of Big O's Confidential Operating Manual and Operations Manual, known as "Blue II"or other such proprietary information. (e) Assistance in selecting Franchisee's initial inventory. 7.02 On-Going Assistance. Big O agrees to make available to Franchisee the ------------------- following ongoing assistance for which Big O may charge the Franchisee a fee: (a) To the extent available to Big O, a source of Big O private brand tires; (b) Ongoing research and development into new tires and other lines of Products and Services and ways to enhance the competitive posture of Big O Stores; (c) Additional training for the Operator or other personnel of Franchisee, for which Big O may charge the Franchisee a fee; (d) Suggested prices for Big O brands sold at the Franchisee's Store, provided that Franchisee will not be required to sell at any particular price if such a requirement would be unlawful; - 5 - (e) A warranty or replacement program for Big O private brand tires and related automotive Products and Services; (f) Regional training provided by Big O personnel and field assistance, inspections and advice pertaining to the Franchisee's Store provided by Big O area managers; (g) Point of sale advertising materials and wearables utilizing Big O marks will be purchased through Big O's subsidiary, O Advertising, Inc., or such other licensee as designated by Big O; and from time to time, local advertising plans and materials, special promotions and similar advertising, for which Big O may charge the Franchisee a fee; (h) At the request of Franchisee's Local Group, Big O will supply Franchisee with newspaper mats and radio and television commercial tapes, for which Big O may charge Franchisee or the Local Group a fee. 8. FEES 8.01 Initial Franchise Fee. In consideration of the execution of this --------------------- Agreement, Franchisee agrees to pay Big O an initial franchise fee in the amount and at the times specified on the Summary Pages. Except as described in Section 7.01(c) above, the initial franchise fee is not refundable. 8.02 Royalty Fee. After the Commencement Date, Franchisee shall pay to ----------- Big O a monthly royalty fee equal to two percent (2%) of the prior month's Gross Sales. The royalty fee must be postmarked and mailed to Big O by no later than the Due Date. 8.03 Late Fees. If any fee or any other amount due under this Agreement, --------- including payments for Products and Services, is not received within ten (10) days after such payment is due, Franchisee shall pay Big O interest equal to the lesser of the daily equivalent of eighteen percent (18%) per annum of such overdue amount per year, or the highest rate then permitted by applicable law, for each day such amount is past due. 8.04 Taxes. If any federal, state, or local tax other than an income tax ----- is imposed upon royalty fees paid by Franchisee to Big O which Big O cannot offset against taxes it is required to pay under the laws of the United States or the state of its domicile, Franchisee agrees to compensate Big O in the manner prescribed by Big O so that the net amount or net rate received by Big O is no less than that which has been established by this Agreement and which was due Big O on the Effective Date of this Agreement. 8.05 Allocation of Payments. Unless other written instructions accompany a ---------------------- specific payment, all payments made by Franchisee pursuant to this Agreement shall be applied in such order as Big O may designate from time to time. Big O shall comply with any written instructions for allocation specified by Franchisee to the extent, in Big O's opinion, it is reasonable to do so. 9. LICENSED MARKS 9.01 Licensed Marks. Franchisee expressly acknowledges that Big O is the -------------- sole and exclusive licensor of the Licensed Marks. Franchisee agrees not to represent in any manner that Franchisee has acquired any ownership rights in the Licensed Marks. Franchisee agrees not to use any of the Licensed Marks or any marks, names, or indicia which are or may be confusingly similar in its own corporate or business name except as authorized in this Agreement. Franchisee further acknowledges and agrees that any and all goodwill associated with the Big O System and identified by the Licensed Marks shall inure directly and exclusively to the benefit of Big O and that, upon the expiration or - 6 - termination of this Agreement for any reason, no monetary amount shall be assigned as attributable to any goodwill associated with Franchisee's use of Licensed Marks. 9.02 Limitations on Use. Franchisee understands and agrees that any use of ------------------ the Licensed Marks other than as expressly authorized by this Agreement, without Big O's prior written consent, is an infringement of Big O's rights therein and that the right to use the Licensed Marks granted herein does not extend beyond the termination or expiration of this Agreement. Franchisee expressly covenants that, during the term of this Agreement and thereafter, Franchisee shall not, directly or indirectly, commit any act of infringement or contest or aid others in contesting the validity of Big O's right to use the Licensed Marks or take any other action in derogation thereof. 9.03 Infringement. Franchisee acknowledges Big O's right to regulate the ------------ use of the Licensed Marks and Trade Dress of the Big O System. Franchisee shall promptly notify Big O if it becomes aware of any use or any attempt by any person or legal entity to use the Licensed Marks or Trade Dress of the Big O System, any colorable variation thereof, or any other mark, name, or indicia in which Big O has or claims a proprietary interest. Franchisee shall assist Big O, upon request and at Big O's expense, in taking such action, if any, as Big O may deem appropriate to halt such activities, but shall take no action nor incur any expenses on Big O's behalf without Big O's prior written approval. 9.04 Franchisee's Business Name. Franchisee further agrees and covenants -------------------------- to operate and advertise only under the name or names from time to time designated by Big O for use by similar Big O System franchisees; to refrain from using the Licensed Marks to perform any activity or to incur any obligation or indebtedness in such a manner as may, in a way, subject to Big O to liability therefor; to observe all laws with respect to the registration of trade names and assumed or fictitious names; to include in any application for the above a statement that Franchisee's use of the Licensed Marks is limited by the terms of this Agreement, and to provide Big O with a copy of any such application and other registration document(s); and to observe such requirements with respect to trademark and service mark registrations, copyright notices, and other notices as Big O may, from time to time, require. 9.05 Change of Licensed Marks. Subject to the requirements of Section 25 ------------------------ of this Agreement, Big O reserves the right, in its sole discretion, to designate one or more new, modified, or replacement Licensed Marks or trade names for use by franchisees and to require the use by Franchisee of any such new, modified, or replacement Licensed Marks or trade names in addition to or in lieu of any previously designated Licensed Marks. Any expenses or costs associated with the use by Franchisee of any such new, modified, or replacement Licensed Marks shall be the sole responsibility of Franchisee. 10. STANDARDS OF OPERATION 10.01 Standards of Operations. Big O shall establish and Franchisee shall ----------------------- maintain high standards of quality, appearance and operation for the Franchised Business. For the purpose of enhancing the public image and reputation of the businesses operating under the System and for the purpose of increasing the demand for Products and Services provided by Franchisee and Big O, the parties agree as follows: (a) Franchisee shall not open the Store for business until Big O has provided Franchisee with written authorization to do so; (b) Franchisee shall comply in good faith with all published Big O System rules, regulations, policies, and standards, including, without limitation, those contained in the Manual. Franchisee shall - 7 - operate and maintain the Franchised Business solely in the manner and pursuant to the standards prescribed herein, in the Manual and in other materials provided by Big O to Franchisee, and shall make such modifications thereto as Big O may require; (c) Franchisee shall at all times operate the Store diligently and in a manner which is consistent with sound business practices so as to maximize the revenues therefrom; (d) Franchisee shall at all times maintain working capital and a net worth which is sufficient, in Big O's opinion, to enable Franchisee to fulfill properly all of Franchisee's responsibilities under this Agreement; (e) Franchisee shall at all times maintain its Store in the image of and according to the standards of Big O as prescribed in the Manual. Moreover, Franchisee agrees to cooperate with Big O at its expense, to the extent building and site limitations permit, in the implementation of new programs, including those which may require the addition of new equipment or fixtures for the Store. In its sole discretion, Big O may waive some or all of any of its franchisees' obligations to comply with such programs. (f) Prior to opening, Franchisee shall provide Big O with written certificates or documentary evidence from an insurance company or companies that Franchisee has obtained the insurance coverage prescribed by Section 21; (g) If Franchisee maintains a customer list, such lists or parts thereof shall be disclosed to no one other than Franchisee's employees or Big O without Big O's prior written consent; and (h) Franchisee shall participate in and be bound by the decisions of any Local Group established and operated pursuant to standards and within the guidelines prescribed or approved by Big O. Franchisee shall not be subject to any agreement to fix prices, or allocate customers or territories which would violate any applicable laws. Nor will Franchisee be subject to any capital investment requirements or other standards which are inconsistent with this Agreement or which have not been approved or prescribed by Big O. 11. STORE MANAGEMENT 11.01 Store Management. Franchisee's Store shall only be operated by the ---------------- Operator or a Manager employed by the Franchisee who has previously been approved by Big O. All initial and subsequent Operators or Managers must be approved by Big O. Big O's approval will be conditioned upon the Operator's or Manager's successful completion of any training required by Big O. Big O may waive some or all of its initial training requirements for Operators or Managers who have already received such training as a result of their affiliation with another Store or Big O franchisee. If Franchisee or Franchisee's Operator has not already successfully completed such training, he shall be required to successfully complete the training described in Section 7.01 (c) above. 11.02 Completion of Training by Operator or Manager. Franchisee's Operator --------------------------------------------- or Manager and such of its managerial personnel or Shareholders as are designated by Big O, shall complete, to Big O's reasonable satisfaction, any and all training programs Big O may reasonably require or provide at such time as Big O may reasonably prescribe. All expenses incurred by persons receiving such training, including, without limitation, costs of travel, room and board, as well as wages of the person(s) receiving such training shall be borne by the Franchisee except that the transportation and lodging costs for the first person receiving such training shall be paid by Big O. - 8 - 11.03 Operation of Store by Big O. Under the circumstances described --------------------------- below, upon Franchisee's request, Big O has the option, but not the duty, to replace or substitute for Franchisee's Operator, Manager, or both, its own employees or agents, to operate the Franchisee's Store for the benefit of Franchisee with complete discretion over all matters relating to its operation. Franchisee shall pay Big O's then current Store management fee as well as the out-of-pocket expenses Big O incurs for travel, food and lodging in the course of providing such services. Big O may operate Franchisee's Store if: (a) Franchisee's Operator or Manager has failed to satisfactorily complete any training required by this Section 11; or (b) Franchisee's Operator or Manager becomes physically or mentally incapable of operating the Franchised Business; or (c) Franchisee's Operator or Manager dies and a new Operator or Manager has not completed initial training. 12. QUALITY CONTROL 12.01 Inspections. Franchisee hereby grants to Big O and its authorized ----------- agents the right to enter the Premises during regular business hours: (a) To conduct inspections and, upon Big O's request, Franchisee agrees to render such assistance as may reasonably be requested and to take such steps as may be necessary immediately to correct any deficiencies in the operation of its Franchised Business pursuant to this Agreement which are detected during such an inspection; and (b) To remove from the Premises, certain samples of any Products and Services, supplies or goods, in amounts reasonably necessary for testing or examination by Big O or an independent laboratory, to determine whether such samples meet Big O's then current standards and specifications. Big O will grant Franchisee a credit equivalent to the cost of any approved Products and Services or supplies damaged or removed by it. 13. MANUAL; NEW PROCESSES 13.01 Manual. To protect the reputation and goodwill of the businesses ------ operating under the System and to maintain high standards of operation under the Licensed Marks, Franchisee shall conduct the Franchised Business strictly in accordance with the Manual, which Franchisee acknowledges belongs solely to Big O and shall be on loan from Big O during the term of this Agreement. Franchisee agrees to pay Big O up to Five Thousand Dollars ($5,000) for the failure to return the Confidential Operating Manual, Big O's Blueprint for Success, otherwise known as Blue II, any training module or any other proprietary information to Big O within five (5) days of the Expiration Date or Termination Date of this Agreement, or the date upon which controlling interest in the Franchisee, the Franchised Business or its assets is transferred. However, Big O will waive the payment if Franchisee notifies Big O that it has lost or mislaid all or part of the Manual at any time prior to six (6) months before the date upon which the Franchise is transferred, terminates, or expires. 13.02 Confidentiality of Information. Franchisee shall at all times use ------------------------------ its best efforts to keep Big O's Information confidential and shall limit access to the Information to employees and independent contractors of Franchisee on a need-to-know basis. Franchisee acknowledges that the unauthorized use or disclosure of Big O's Information will cause irreparable injury to Big O and that damages are not adequate remedy. Franchisee accordingly covenants that it shall not at any time, - 9 - without Big O's prior written consent, disclose, use, permit the use thereof (except as may be required by applicable law or authorized by this Agreement), copy, duplicate, record, transfer, transmit, or otherwise reproduce such Information, in any form or by any means, in whole or in part, or otherwise make the same available to any unauthorized person or source. Any and all Information, knowledge, and know-how not generally known about the System and Big O's Products and Services, standards, procedures, techniques, and such other Information or material as Big O may designate as confidential shall be deemed confidential for purposes of this Agreement, except Information which Franchisee can demonstrate lawfully came to its attention prior to disclosure by Big O, or which legally is or has become a part of the public domain by publication or communication by others. 13.03 Revisions to Manual. Franchisee understands and acknowledges that ------------------- subject to the requirements of Section 25, Big O may, from time to time, revise the contents of the Manual to implement new or different requirements for the operation of the Franchised Business, and Franchisee expressly agrees to comply with all such changed requirements which are by their terms mandatory, provided, that such requirements apply in a reasonably nondiscriminatory manner to comparable Big O franchisees. The implementation of such requirements may require the expenditure of reasonable sums of money by Franchisee. Big O will not alter the basic rights and obligations of the parties arising under this Agreement through changes to the Manual. 13.04 Improvements to System. If Franchisee develops any concept, process, ---------------------- service, or improvement in the operation or promotion of the Store, Big O may itself use or disclose it to other Big O franchisees without any obligation to compensate Franchisee therefor. If the concept, process, service, or improvement is adopted for use by the majority of Big O Stores, such concept, process, service, or improvement shall become the property of Big O and Big O may itself use or disclose it to other Big O franchisees without any obligation to compensate Franchisee therefor. 14. PRODUCTS AND SERVICES 14.01 Products and Services. Franchisee acknowledges that its principal --------------------- interest in acquiring a Big O Franchise is to sell Big O private brand tires and related merchandise and benefit from Big O's Products and Services selection, purchasing programs including programs for the purchase of major brand tires, and marketing expertise. The consuming public expects Big O Stores to offer the full line of Big O Products and Services and advertised warranty services. Accordingly, Franchisee shall at all times have in stock on the Premises a complete representative line of Big O private brand tires, shock absorbers, related merchandise, and other Products and Services in such quantities as Big O may prescribe from time to time. 14.02 Approval of Products and Services. Prior to commencing business at --------------------------------- the Premises, Franchisee shall stock the Store with Products and Services and supplies of such variety and in such amounts as Big O may select. Franchisee may not sell any product or service which has not been selected, manufactured, or approved by Big O. Big O is not obliged to approve any product, service, or merchandise selected by the Franchisee. Big O will exercise its right of approval of suppliers selected by the Franchisee which are not at the time approved by Big O for use by the Franchisee in accordance with the following procedure: (a) The Franchisee must submit a written request to Big O for approval of the supplier; (b) The Franchisee must demonstrate to Big O the existence of a need for the product; (c) The supplier must demonstrate to Big O's reasonable satisfaction, that it is able to supply a commodity to the Franchisee meeting Big O's specifications for such commodity and that it is able to do so on a timely basis; - 10 - (d) The supplier must demonstrate to Big O's reasonable satisfaction that the supplier is of good standing in the business community with respect to its financial soundness and reliability of its product and service; (e) The supplier must agree to indemnify and hold Big O and the Franchisee harmless from and against any claim or liability by reason of the supplier's products, including without limitation, defects in materials and workmanship and supplier must provide to Big O certificates or other evidences of insurance coverage with coverage limits sufficient to cover the risks and an endorsement reflecting that Big O and Franchisee are named as additional insureds under the supplier's insurance policies; and (f) Big O must be reasonably satisfied that the commodity is priced competitively. Big O's current practice is to notify the Franchisee of its approval or disapproval in writing as soon as practicable. 14.03 Inventory. Franchisee shall at all times maintain an inventory of --------- Products and Services in such amounts and of such variety as Big O may reasonably require, and shall offer all services which Big O may require. 14.04 Warranties and Guaranties. Franchisee agrees to issue and honor ------------------------- warranties and guarantees written on certain Products and Services sold to consumers in accordance with the terms and procedures prescribed in the Manual. Any such warranty or guaranty will be offered through all Big O Tire Stores on a nondiscriminatory basis. Only warranties or guarantees sponsored or approved by Big O may be offered or honored by Franchisee (other than those required by law). Franchisee and Big O shall only honor warranties and guaranties on Products and Services which have been sold to and returned by consumers in accordance with the terms and procedures prescribed in the Manual. Franchisee acknowledges that it will honor any and all warranties and guarantees sponsored or approved by Big O, regardless of where or by whom they were issued. Franchisee shall make no charge to a customer for honoring such a warranty or guaranty unless the charge is permitted by the express terms of the warranty or guaranty or the then current Manual. Big O agrees not to change or revoke any warranty or guaranty without giving Franchisee at least thirty (30) days prior written notice. Warranties or guarantees issued prior to any such revocation or modification shall be honored according to their terms as interpreted in the Manual. 14.05 Open Account Financing. In its sole discretion, Big O may provide ---------------------- Franchisee with open account financing for some or all of the Products and Services it sells Franchisee. Whether or not such credit is offered, Franchisee will be required to execute a security agreement and comply with all other requirements of Big O to secure Franchisee's obligations to Big O under the Franchise Agreement and perfect its security interest therein. If such credit is offered, Franchisee will be required to execute a credit agreement and security agreement and comply with all other requirements of Big O to secure such payments and perfect its security interest therein. Franchisee's failure to comply with any credit terms set forth above shall constitute an event of default of this Agreement. 15. ADVERTISING, MARKETING AND PROMOTIONAL PLANS 15.01 Initial Advertising. Recognizing the value of standardized ------------------- Advertising programs to the furtherance of the goodwill and public image of the Big O System, the parties agree that within the first year of business, Franchisee is required to spend on Initial Advertising, in addition to the required four percent (4%), the amount specified on the Summary Pages. The exact amount to be spent on Initial Advertising shall be determined by the Franchisee's Local Group and will depend, in part, on Big O's then current presence in the market place, reputation and name recognition. The amount and manner of the Initial Advertising must be approved in advance by Big O. If no Local Group exists for - 11 - the region where Franchisee's Store is located, then the amount of the Initial Advertising shall be agreed upon by Big O and Franchisee. 15.02 National Advertising Fund. Big O has established a National ------------------------- Advertising Fund which Big O, in its sole discretion, may decide to terminate at any time. If Big O does terminate the National Advertising Fund, Big O, in its sole discretion, may re-establish it at any time. Big O shall notify Franchisee as to the manner in which it shall function and the amount of contribution required of Franchisee. (a) Not later than the Due Date, Big O or its designee must have received from Franchisee such amount as Big O shall designate, but not more than one percent (1%) of its previous month's Gross Sales, as a contribution to the National Advertising Fund which shall be maintained or approved by Big O for Big O National Advertising. Big O shall limit any increase in Franchisee's contribution to the National Advertising Fund from any amount then currently being charged to one-tenth of one percent (.001%) in any twelve (12) consecutive month period and an additional one-tenth of one percent (.001%) for each twelve (12) consecutive months thereafter until the one percent (1%) limitation is reached. Such incremental increases shall not be cumulative so that if Big O fails to adopt an additional incremental increase after any twelve (12) consecutive month period, the next one-tenth of one percent (.001%) incremental increase will not accrue until actually adopted by Big O and shall constitute the maximum for the next consecutive twelve (12) months; provided, however, in the event Big O shall determine, in its sole judgment and discretion, that a special advertising circumstance or opportunity is available to Big O and/or its franchisees, Big O may propose to the Dealer Planning Board a greater increase during any consecutive twelve (12) month period (up to one percent (1%) limit), and if a majority of the members of the Dealer Planning Board agree to such increase, it shall be implemented by Big O, not withstanding Big O's limitation as to the phasing in of any increases. (b) Big O shall, following consultation with the Dealer Planning Board, direct all National Advertising which is provided through the National Advertising Fund with sole discretion over the concepts, materials, and media used therein. All National Advertising Fund contributions paid by Franchisee and other similarly situated Big O System franchisees to Big O shall be part of the National Advertising Fund. (c) Franchisee understands and acknowledges that the National Advertising Fund is intended to maximize general public recognition and acceptance of the Licensed Marks for the benefit of the System as a whole and that Big O undertakes no obligation in administering the National Advertising Fund to insure that any particular franchisee benefits directly or pro rata from the national Advertising. Franchisee agrees that the National Advertising Fund may otherwise be used to meet any and all costs incident to such Advertising; provided that no part thereof shall be used by Big O to defray its general operating expenses other than (i) those reasonably allocable to such Advertising, or (ii) other activities reasonably related to the administration or direction of the National Advertising Fund and its related programs. No refund of contributions to the National Fund shall be due Franchisee upon termination or nonrenewal of this Agreement. (d) Any part of the National Advertising Fund contributions paid to Big O, but not spent by Big O during Big O's fiscal year, which Big O may change in its sole discretion, shall remain in the National Advertising Fund. Any taxes imposed on the National Advertising Fund shall be paid from the National Advertising Fund. (e) The Dealer Planning Board shall have the right to review all expenditures of the National Advertising Fund on a regular basis. - 12 - 15.03 Local Fund. Franchisee shall also contribute by the Due Date a ---------- minimum of four percent (4%) of its Store's Gross Sales for the previous month either to Big O or, if a Local Fund has been established in Franchisee's marketing area, to the Local Fund formed for the purpose of local advertising and operated pursuant to such structure and guidelines as Big O may prescribe or approve. Franchisee agrees to be bound by the decisions of either Big O or its Local Group, if one has been established in Franchisee's marketing area, pertaining to Local Advertising, provided such decisions have been approved by Big O and do not violate any applicable laws. From time to time, the Local Group may agree to increase the amount Franchisee is required to spend for Advertising, but subject to the terms of certain documents already effective on this Agreement's Effective Date, not by more than one percent (1%) of Franchisee's Gross Sales on an annual basis. 15.04 Approval of Advertising. Franchisee or the Local Group shall submit ----------------------- (through the mail, return receipt requested) to Big O for its prior written approval (except with respect to prices to be charged), samples of all marketing materials and advertising to be used by Franchisee that have not been prepared or previously approved in all respects by Big O or its designated agents. Franchisee shall submit tear sheets, receipts, and other evidence of such Advertising in the manner prescribed by Big O. Franchisee will not be required to submit to Big O copies of any proposed Advertising which has been adopted for use by the Local Group and which was previously approved by Big O for use by the Local Group. 16. STATEMENTS AND RECORDS 16.01 Invoices. Every sale of Products and Services from the Franchisee's -------- Store shall be accurately recorded on a consecutively numbered invoice or in such other format as Big O may approve. All invoices, whether voided or used, shall be accounted for by Franchisee. 16.02 Audit. Throughout the term of this Agreement and for two (2) years ----- thereafter, Franchisee shall maintain for not less than three (3) years original, full, and complete records, accounts, books, data, licenses, and contracts which shall accurately reflect all particulars relating to the Franchised Business and such other statistical and other information or records as Big O may require. Big O or its designated agent shall have the right to examine and audit such records, accounts, books, and data during regular business hours or at reasonable times. If any such examination or audit discloses that Franchisee has understated its Store's Gross Sales by more than two percent (2%), Franchisee shall be obliged to reimburse Big O for the cost and expense of such examination or audit. If Franchisee has understated any amount due Big O or any Local Group or Local Fund, it shall tender payment of the amount due not later than ten (10) days following receipt of the auditor's report, plus interest calculated at a rate which is the lower of eighteen percent (18%) per annum or the highest rate permitted by law. If Franchisee has overpaid Big O or such Local Group or Local Fund, such amount will be credited to Franchisee against monthly royalty fees or advertising contributions due to Big O, the Local Group or the Local Fund beginning with the month following receipt of the auditor's report and continuing until the credit is exhausted. 16.03 Monthly Reports. No later than the Due Date, Franchisee shall mail --------------- to Big O all payments of royalty fees and advertising contributions and monthly reports due Big O on forms prescribed by Big O, stating the fees or contributions due to Big O which were incurred during the preceding month as specified from time to time by Big O, the Gross Sales at the Premises for the prior month, copies of all sales tax receipts or returns and such other information as Big O may require, all signed and certified as true and correct by Franchisee or Franchisee's Operator. Big O reserves the right to require such reporting to be performed and submitted to Big O electronically. 16.04 Financial Statements. Franchisee shall deliver to Big O, no later -------------------- than sixty (60) days from the end of each of Franchisee's fiscal quarters, an unaudited profit and loss statement covering - 13 - the Franchised Business for such quarter and a balance sheet of the Franchised Business as of the end of such quarter, all of which shall be certified by Franchisee as true and correct. All such statements shall be prepared in a format which has been prescribed or approved by Big O. In addition, Franchisee, as well as any guarantor(s) of this Agreement, shall, within thirty (30) days after request from Big O, deliver to Big O a financial statement, certified as correct and current, in a form which is satisfactory to Big O and which fairly represents the total assets and liabilities of Franchisee and any such guarantor(s). 16.05 Management System. Big O has authorized Local Groups to recommend to ----------------- Big O that certain Management Systems be obtained and used by all their member franchisees. If Franchisee's Local Group persuades Big O that the acquisition of a Management System by all its member Franchisees is necessary to the efficient functioning of a program which is consistent with the Big O System, Franchisee shall, at its sole expense acquire such Management System and place it in service within such time periods as are recommended by the Local Group and approved by Big O. Once a particular Management System or accounting software has been adopted by a Local Group pursuant to the criteria described herein, Franchisee may utilize a different Management System at Franchisee's Store only with Big O's prior written approval. 16.06 Regional Accounting Center. The Franchisee is required to use some -------------------------- or all of the services provided by a Regional Accounting Center operating within the Franchisee's marketing area. 17. COVENANTS 17.01 Noncompetition During Term. Except for any businesses already -------------------------- operating and identified on the Summary Pages, during the term of this Agreement, Franchisee and any guarantor(s) hereof covenant, individually, not to engage in or open any business, other than as a Franchisee of the Big O System, which offers or sells tires, wheels, shock absorbers, automotive services, or other products or services which compete with Big O Products and Services. The purpose of this covenant is to encourage Franchisee and any guarantor(s) hereof to use their best efforts to promote the Big O System, its Products and Services, to protect its Information and trade secrets, and to generate a successful business at the Store. 17.02 Confidentiality. During the term of this Agreement and thereafter, --------------- Franchisee covenants not to communicate directly or indirectly, divulge to or use for its benefit or the benefit of any other person or legal entity, any trade secrets which are proprietary to Big O or any Information, knowledge, or know-how deemed confidential under Section 13 hereof, except as permitted by Big O. The protection granted hereunder shall be in addition to and not in lieu of all other protections for such trade secrets and confidential Information as may otherwise be afforded in law or in equity. 17.03 No Interference with Business. Franchisee agrees that during the ----------------------------- term of this Agreement that it shall not divert or attempt to divert any business of or any actual customers of the Big O System to any competitive business, by direct or indirect inducement or otherwise. 17.04 Post Termination Covenant Not to Compete. If Franchisee terminates ---------------------------------------- this Agreement other than in a manner prescribed by Section 19.03 or if this Agreement is terminated for "good cause" as defined in Section 19.01, Franchisee and its guarantors covenant that they shall not directly or indirectly, for a period of two (2) years after the Termination Date of this Agreement, engage in any business, other than as a Franchisee of the Big O System, which offers or sells tires, wheels, shock absorbers, automotive services, or other products or services which compete with Big O Products and Services within a ten (10) mile radius of the Premises or within a ten (10) mile radius of any other Big O Store which was operational or under construction on the Termination Date. - 14 - If a former Franchisee or guarantor commits a breach of this Section 17.04, the two year period shall start on the date that the former Franchisee or guarantor is enjoined from competing or stops competing, whichever is later. 17.05 Survivability of Covenants. The parties agree that each of the -------------------------- foregoing covenants shall be construed as independent of any other covenant or provision of this Agreement. If all or any portion of a covenant in this Section 17 is held unenforceable by a court or agency having valid jurisdiction in an unappealed final decision to which Big O is a party, Franchisee expressly agrees to be bound by any lesser covenant imposing the maximum duty permitted by law that is subsumed within the terms of the covenant, as if the resulting covenant were separately stated in and made a part of this Section 17. Franchisee further expressly agrees that the existence of any claim it may have against Big O, whether or not arising from this Agreement, shall not constitute a defense to the enforcement by Big O of the covenants in this Section 17. The covenants in this Section 17 shall survive the Termination Date or Expiration Date of this Agreement. 17.06 Modification of Covenants. Franchisee understands and acknowledges ------------------------- that Big O shall have the right, in its sole discretion, to reduce the scope of any covenant set forth in this Section 17 or any portion hereof, without Franchisee's consent, effective immediately upon receipt by Franchisee of written notice thereof; and Franchisee agrees that it shall comply immediately with any covenant as so modified. 18. TRANSFER AND ASSIGNMENT 18.01 Assignment by Big O. This Agreement and all rights and duties ------------------- hereunder may be freely assigned or transferred by Big O and shall be binding upon and inure to the benefit of Big O's successors and assigns. 18.02 Right of First Refusal. Because Big O or someone known to Big O may ---------------------- be interested in purchasing Franchisee's Franchised Business, the Premises, or an interest in either, if Franchisee decides to make a Transfer, Franchisee agrees to offer in writing to make the Transfer to Big O, and describe the terms under which Franchisee offers to make such a Transfer. If Big O has not offered to purchase what the Franchisee has offered to Transfer to Big O within thirty (30) days after Big O receives the notice from Franchisee, Franchisee may then offer to make the Transfer to third parties on the same or not more favorable terms and conditions as were offered to Big O. If Franchisee does not consummate the Transfer within six months after Franchisee gives notice of the Transfer to Big O, Franchisee shall not make the Transfer without again first offering to make the Transfer to Big O. 18.03 Transfer Legend. Franchisee understands and acknowledges that the --------------- rights and duties set forth in this Agreement are personal to Franchisee and that Big O has granted the Franchise in reliance on Franchisee's personal background, business skills, experience, and financial capacity. It is important to Big O that Franchisee be known to Big O and always meet Big O's standards and requirements. Accordingly, neither Franchisee nor any Shareholder shall be permitted or have the power, without the prior written consent of Big O, to make a Transfer. To assure compliance by Franchisee with the transfer restrictions contained in this Section 18, all share or stock certificates of Franchisee shall at all times contain a legend sufficient under applicable law to constitute notice of the restrictions on such stock contained in this Agreement and to allow such restrictions to be enforceable. Such legend shall appear in substantially the following form: - 15 - "The sale, transfer, pledge, or hypothecation of this stock is restricted pursuant to the terms of Section 18 of a Franchise Agreement dated between Big O Tires, Inc, and the issuer of --------------------- these shares." Any Transfer which does not comply with the terms of this Section 18 shall be null and void. 18.04 Pre-Conditions to Franchisee's Assignment. If Franchisee or any ----------------------------------------- Shareholder desires to make a Transfer, such person or entity must comply with the following terms, conditions, and procedures to effectuate a valid Transfer: (a) If any proposed assignment of any rights under this Agreement, or if any other Transfer which, when aggregated with all previous Transfers, would in the reasonable opinion of Big O, result in the transfer of effective control over the ownership and/or operation of the Premises or Franchisee or the Franchised Business: (i) The transferee must apply for a Big O franchise and must meet all of Big O's then current standards and requirements for becoming a Big O franchisee (which standards and requirements need not be written); and (ii) The transferee shall execute the then current form of Franchise Agreement generally issued by Big O with respect to comparable Big O franchisees. Such agreement shall generally provide for a new term equal to the term of the standard Big O franchise agreement then being offered, and may include, without limitation, different fee structures, modified Trade Areas and/or increased fees; (b) Regardless of the degree of control which would be affected by a proposed Transfer: (i) Franchisee shall first notify Big O in writing of any bona fide proposed Transfer and set forth a complete description of all terms and fees of the proposed Transfer in the manner prescribed by Big O, including the prospective transferee's name, address, financial qualifications, and previous five (5) years business experience; (ii) Big O or its assignee may, within thirty (30) days after receipt of such notice, exercise the Option to purchase the interest being offered by Franchisee or any Shareholder; (iii) If Big O or its assignee fails to exercise the Option to purchase the interest, Big O shall, within thirty (30) days after receipt of the notice of the Option, notify Franchisee in writing of its approval or disapproval of the prospective transferee. Big O's approval will be granted only if the prospective transferee, its Shareholders, partners, and/or Operator: meets Big O's then current standards for new franchisees, which standards need not be in writing; demonstrates to Big O's satisfaction that it or its Operator meets Big O's managerial, business, and technical standards; possesses a good moral character, business reputation, and satisfactory credit rating; and has the aptitude, ability, and financial capacity to operate the Franchised Business (as may be evidenced by prior related business experience or otherwise). Big O reserves the right to disallow a transfer of the Premises (without a transfer of the Franchised Business) to a person which would operate a business from the Premises which sells or offers for sale products or services which are the same as or similar to those offered for sale through the Franchised Business; - 16 - (iv) If Big O approves the proposed transferee, Franchisee or the Shareholder may transfer the interest to the proposed transferee at a price and under terms and conditions which are not more favorable than the terms offered to Big O. Big O's approval is conditioned upon the proposed transferee or its Operator having completed (to the satisfaction of Big O) the training program then currently required of Big O franchisees or Operators; (v) Prior to the consummation of any such Transfer, Franchisee shall pay all amounts due to Big O and cure all other breaches of this Agreement and any other agreement or loan document it may have with Big O; (vi) Big O will, as a condition of any Transfer involving a change in control of Franchisee, the Store or its Assets, require Franchisee or Transferee to pay a transfer fee (but no initial franchise fee) to reimburse Big O for any expenses which may be incurred in its review, analysis, and preparation of any documentation relating to the Transfer, including legal and accounting fees, any required training and additional assistance as may be requested by the Franchisee related to the Franchisee's resale of the Store. The transfer fee will range between $4,500 and the amount of the then current initial franchise fee, the exact amount within that range to be based on Big O's actual costs incurred. Big O shall be the sole arbiter of whether a change of control occurred as a result of a single Transfer or a group of Transfers; For any transfer of less than fifty percent (50%) of Franchisee's ownership, Big O will, as a condition of any Transfer involving less than fifty percent (50%) of Franchisee's ownership in the Franchise, the store or its assets, require the Franchisee or the transferee to pay a transfer fee (but no initial franchise fee) to reimburse Big O for any expenses which may be incurred in its review, analysis and preparation of any documentation relating to the Transfer, including legal and accounting fees and additional assistance as may be requested by the Franchisee related to the resale of the Store. The transfer fee will be $500. However, if such Transfer consumes an inordinate amount of time (in excess of ten (10) hours of cumulative Big O personnel time) the Franchisee or the Transferee may be billed the then current billable hour rate, which is currently in addition to the $500 fee. The transferee will be charged no other initial franchise fee. Big O shall be the sole arbiter of whether a change of control will occur as a result of a single Transfer or a group of Transfers. (vii) Big O may require any transferor of any partnership interest, shares of stock, or any other interest of any kind or nature in Franchisee to guarantee the obligations of Transferee under this Agreement or under any new Franchise Agreement entered into between transferee and Big O; (viii) Prior to approving a Transfer of the controlling interest in Franchisee, the Franchised Business, or the Premises, Big O may inspect Franchisee's Store and as a result of such inspection, Big O may prepare a "Punch List" setting forth the necessary repairs, maintenance, or other upgrading of the Store which will become a condition of Big O's approval of the Transfer; and (ix) If the Franchisee acquired its interest in the Franchise as a Pioneer, Converter, or pursuant to a Development Agreement or Manager Incentive Contract, and the Franchisee makes a Transfer of its interest within two (2) years of the Effective Date of this Agreement, the Franchisee must pay Big O as a condition of such Transfer - 17 - the difference between the initial franchise fee paid by Franchisee and twenty-one thousand dollars ($21,000.00), the standard initial franchisee fee charged by Big O for new franchises when Franchisee executed this Agreement. (x) Franchisee shall comply with all other applicable transfer requirements as designated in the Confidential Operating Manual or otherwise in writing. 18.05 Death of Franchisee. Notwithstanding any other provision in this ------------------- Section 18, if a Survivor desires to acquire or retain the interest of a decedent of a Franchisee or in a Franchisee and continues to operate the Franchised Business pursuant to the System, the Survivor may do so under the terms of this Agreement subject only to: (a) The Survivor's execution and delivery to Big O of a written agreement to be bound: (i) By the terms of this Agreement; and (ii) By the terms of any guaranty of this Agreement; (b) Satisfactory completion of initial training by the Survivor, Survivor's Operator, or Manager and such other managerial personnel as Big O may designate within the time periods prescribed by Big O; and (c) The Survivor's payment of all travel, lodging, food, and similar expenses incurred by it or its Operator or managerial personnel in attending the training prescribed by Section 11.02. If the Survivor does not desire to acquire or retain such interest, then the Survivor shall have a reasonable period of time, but no more than six (6) months, to make a Transfer to a transferee acceptable to Big O subject to compliance with the procedures set forth in this Section 18, provided, the Survivor throughout such period fulfills all duties of Franchisee under this Agreement. 18.06 No Waiver. Big O's consent to a Transfer hereunder shall not --------- constitute a waiver of any claims Big O may have against Franchisee or the transferring party or Big O's right to demand exact compliance with any provision of this Agreement. 18.07 Excepted Transfers. The provisions of Section 18.02 and 18.04(b)(ii) ------------------ shall not apply to: (a) any Transfer to a spouse, parent, child, or sibling of Franchisee or any Shareholder; (b) a Transfer to Franchisee's Operator or Manager pursuant to the terms of a Manager Incentive Contract which complies in all respects with the standards approved or prescribed by Big O; or (c) a Transfer to a spouse, parent, child, or sibling of Franchisee or any Shareholder which, in the aggregate, amounts to a Transfer of less than a controlling interest in Franchisee, the Franchised Business, or the Premises. 19. DEFAULT AND TERMINATION 19.01 Termination by Big O. Big O may terminate this Agreement for good -------------------- cause, without prejudice to the enforcement of any legal or equitable right or remedy, immediately upon giving written notice of such termination and the reason or cause for the termination, and, except as hereinafter provided, without providing Franchisee an opportunity to cure the default. Without in any way limiting the generality of the meaning of the term "good cause", the following occurrences shall constitute sufficient basis for Big O to terminate the Agreement: - 18 - (a) If Franchisee fails to pay any financial obligation pursuant to this Agreement including, but not limited to, payments to Big O or any other supplier for Products and Services, and fails to cure such failure to pay within five (5) days after Big O gives Franchisee a written notice of default; (b) If Franchisee fails to perform or breaches any covenant, obligation, term, condition, warranty, or certification herein and fails to cure such non-compliance within thirty (30) days after Big O gives Franchisee written notice of default; (c) If Franchisee fails to open the Store and commence business within eighteen (18) months of the Effective Date of this Agreement, or if Franchisee fails to commence business on such other Commencement Date as the parties hereto may have agreed; (d) If Franchisee makes, or has made, any materially false statement or report to Big O in connection with this Agreement or the application therefor; (e) If Franchisee operates the Franchised Business in a manner contrary to or inconsistent with the Licensed Marks or as specified by Big O in the Manual, and Franchisee fails to cure such deficiency within thirty (30) days after Big O gives a written notice of default; (f) If Franchisee, a Shareholder, guarantor, or transferee violates any transfer and assignment provision contained in Section 18 of this Agreement; (g) If Franchisee receives from Big O more than three (3) valid notices of default of this Agreement in the same twelve (12) month period, regardless of whether previous defaults have been cured; (h) If Franchisee fails to operate or keep the Franchised Business open for more than five (5) consecutive business days without Big O's express written approval, or if Franchisee ceases to operate all or any part of the Franchised Business conducted under this Agreement or defaults under any loan, lending agreement, mortgage, deed of trust or lease with any party covering the Premises, and such party treats such act or omission as a default, and Franchisee fails to cure such default to the satisfaction of such party within any applicable cure period granted Franchisee by such party; (i) If Franchisee or any person owning an interest in Franchisee is convicted of any felony or crime of moral turpitude regardless of the nature thereof, or any other crime or offense relating to the operation of the Franchised Business, or if Franchisee engages in any conduct which reflects materially and unfavorably upon the operation of the Franchised Business; (j) If Franchisee becomes insolvent or makes a general assignment for the benefit of creditors, or if a petition in bankruptcy is filed by Franchisee, or such a petition is filed against and consented to by Franchisee, or if a bill in equity or other proceeding for the appointment of a receiver of Franchisee or other custodian for Franchisee's business or assets is filed and consented to by Franchisee, or if a receiver or other custodian (permanent or temporary) of Franchisee's assets or property, or any part thereof, other than as described in Section 18.05, is appointed; (k) If Franchisee or any guarantor(s) hereof defaults in any other agreement or loan document with Big O or if Franchisee defaults under the terms of any lease of the Premises or if Franchisee fails to comply with the requirements of any Local Group operating pursuant to standards prescribed or approved by Big O including, but not limited to, any requirement to pay - 19 - dues or make advertising contributions, and such default is not cured in accordance with the terms of such other agreement, loan document, or lease, or the by-laws of the Local Group; (l) If Franchisee fails, for a period of ten (10) days after notification of non-compliance, to comply with any law or regulation applicable to the operation of the Franchised Business; (m) If Franchisee sells, offers for sale, or gives away at the Premises any products or services which have not been previously approved by Big O in writing, or which have been subsequently disapproved; (n) If Franchisee shall have understated its Gross Sales to Big O by more than two percent (2%) on two (2) or more occasions; or (o) If a court of competent jurisdiction or an arbitration tribunal in a final and unappealed judgment determines that any significant amount of the payments or compensation which Franchisee has agreed to pay Big O pursuant to the terms hereof is unlawful, or that all or a significant part of Franchisee's payment obligations hereunder are void or voidable by Franchisee. If a different notice or cure period or good cause standard is prescribed by applicable law, it shall apply to a termination of the Franchise Agreement. Remedies to Big O. If the Franchisee is in default and has failed to cure ----------------- such default in a manner prescribed by the Franchise Agreement, in addition to the rights Big O has to terminate the agreement, the Franchisee agrees to pay to Big O, among the many remedies available to Big O, royalties and any lost gross profits. 19.02 Governing State Law. If a different notice or cure period or good ------------------- cause standard is prescribed by applicable law, it shall apply to a termination of this Agreement. 19.03 Termination by Franchisee. Franchisee may only terminate this ------------------------- Agreement if Big O has committed a material breach of any of Big O's obligations under this Agreement and has failed to cure such breach within thirty (30) days after Franchisee has given written notice to Big O of such breach. 19.04 Force Majeure. Notwithstanding anything contained in this Agreement ------------- to the contrary, neither party shall be in default hereunder by reason of its delay in performance of, or failure to perform, any of its obligations hereunder, if such delay or failure is caused by: (a) strikes or other labor disturbance; (b) acts of God, or the public enemy, riots or other civil disturbances, fire, or flood; (c) interference by civil or military authorities; (d) compliance with governmental laws, rules, or regulations which were not in effect and could not be reasonably anticipated as of the date of this Agreement; (e) delays in transportation, failure of delivery by suppliers, or inability to secure necessary governmental priorities for materials; or (f) any other fault beyond its control or without its fault or negligence. In any such event, the time required for performance of such obligation shall be the duration of the unavoidable delay. - 20 - 20. POST TERMINATION OBLIGATIONS 20.01 Post-Termination Obligations. Upon the expiration or termination of ---------------------------- this Agreement by any means or for any reason, Franchisee shall immediately: (a) Cease to be a Franchisee of Big O and cease to operate the former Franchised Business under the Big O System. Franchisee shall not thereafter, directly or indirectly, represent to the public that the former Franchised Business is or was operated or in any way connected with the Big O System or hold itself out as a present or former Franchisee of Big O; (b) Pay all sums owing to Big O. Upon termination for any default by Franchisee, such sums shall include actual and consequential damages, costs, and expenses incurred by Big O as a result of the default; (c) Return to Big O the (i) Confidential Operating Manual, Blue II, any training modules or other proprietary information and supplements thereto and all trade secrets and confidential materials owned or licensed by Big O and all copies thereof other than Franchisee's copy of the Franchise Agreement, copies of any correspondence between the parties, and any other document which Franchisee reasonably needs for compliance with any applicable law; (ii) return or discontinue use of all forms, advertising matter, marks, devises, insignias, slogans, designs, signs, any computer systems including BOSS/2/ software and/or hardware; and (iii) discontinue the use of all copyrights, Licensed Marks, tradenames and patents now or hereafter applied for or granted in connection with the operation of the Franchise. (d) Provide Big O, upon its request, with a complete list of any outstanding obligations Franchisee may have to any third parties including outstanding customer orders. Big O shall have the right, but not the obligation, to fill any such outstanding customer orders generated by Franchisee and in such event, Franchisee shall immediately reimburse Big O for any costs or expenses incurred by Big O in doing so. In addition, Big O shall have the right to cancel any orders placed by Franchisee for which delivery has not been made; (e) Take such action as may be required by Big O to transfer and assign to Big O or its designee all telephone numbers, white and yellow page telephone references and advertisements, and all trade and similar name registrations and business licenses, and to cancel any interest which Franchisee may have in the same. The Franchisor is hereby appointed as the Franchisee's attorney-in-fact for such purpose and such power, being coupled with an interest, shall be irrevocable; (f) Cease to use in Advertising, or in any manner whatsoever, any methods, procedures, or techniques associated with the Big O System in which Big O has a proprietary right, title, or interest; cease to use the Licensed Marks, and any other marks and indicia of operation associated with the Big O System and remove or change all Trade Dress, Products and Services, and other indicia of operation under the Big O System from the Premises, at Franchisee's expense and in a manner satisfactory to Big O. Unless otherwise approved in writing by Big O, Franchisee shall return to Big O all copies of materials bearing the Licensed Marks; and (g) If during the term of Franchisee's Franchise Agreement, the Franchisee has made available to its customers, the ability to purchase Products and Services from Franchisee's Store by the use of the Big O credit card with American General Finance, upon termination the Franchisee shall cease accepting such card from any future customers. - 21 - (h) Franchisee shall immediately make available to Big O all customer lists as such was developed while a Franchisee. (i) Strictly comply with all other provisions of this Agreement pertaining to post-termination obligations, including, without limitation, those contained in Sections 13 and 17. (j) Any tire adjustments existing as of the Termination Date shall be referred to other existing LSCs, RSCs or other Stores for processing. Franchisee shall receive no allowance for tire adjustments upon termination. 20.02 Right to Repurchase. Big O shall have the right, but not the ------------------- obligation, to purchase: (a) Some or all of the Products and Services and supplies at the Store and the equipment, furnishings, fixtures, or signs at the Premises which bear the Licensed Marks for a mutually agreed upon price within thirty (30) days of the Termination Date or the Expiration Date. (b) If Big O elects to exercise such a right, it may offset the purchase price against any other amounts owed by Franchisee to Big O pursuant to this or any agreement or loan document. Before exercising any such rights, Big O shall have the right to enter upon the Premises during reasonable hours to take an inventory of the Franchised Business. 20.03 Right of First Refusal. Upon receipt by Franchisee of an offer to ---------------------- purchase Franchisee's Products and Services, equipment, supplies, fixtures or signs at the Premises, Franchisee hereby grants Big O a right of first refusal to purchase any of such items by matching the bona fide monetary purchase price and payment schedule terms, less any brokerage commission without having to match any other non-monetary terms of the proposed purchase by Franchisee's buyer(s). Franchisee must give Big O written notice of any such bona fide offer. If within thirty (30) days after receipt of such notice, Big O has neither exercised its right of first refusal nor notified Franchisee of its rejection thereof, Franchisee may sell such items as were covered by the offer at the expiration of the thirty (30) day period. 20.04 De-Identification of Assets Upon Sale. If Big O determines not to ------------------------------------- exercise its option to repurchase any such items, Franchisee may continue to sell its remaining Products and Services, equipment, supplies, and fixtures, but may not identify itself as a Big O Franchisee. Franchisee shall otherwise abide by the terms of this Section 20. 21. INSURANCE 21.01 Insurance Coverage. Franchisee shall, at its expense and no later ------------------ than upon the Commencement Date, procure and maintain in full force and effect throughout the term of this Agreement either the approved Big O Dealers National Insurance Program ("Program") then in effect or the types of insurance enumerated in this Agreement, which shall be in such coverages, limits and amounts as may from time to time be required by Big O, and which shall designate Big O, its directors, officers, employees, agents and other Big O designees as additional named insured(s). Unless otherwise agreed to by Big O, Franchisee shall procure and maintain whichever limits and coverages are greater in a comparison of the insurance enumerated in the Manual and the insurance enumerated in the Program. If the Franchisee chooses not to procure insurance pursuant to the Program, Franchisee shall procure the following insurance coverages, limits and amounts: - 22 - (a) Workers' Compensation insurance with statutory limits for Coverage A as prescribed by the statutes of the state of the Franchised Business; including Coverage B, Employers Liability, with limits not less than or equivalent to $500,000 each person, $500,000 each occurrence, and $500,000 annual aggregate; (b) Comprehensive or Commercial General Liability insurance covering all operations and premises of the Franchised Business, including but not limited to Product Liability, Completed Operations Liability, Personal Injury Protection, Advertisers Liability, Fire Legal Liability, Medical Payments, and Contractual Liability, with limits not less than the equivalent of $2,000,000 per occurrence combined single limit for bodily injury and property damage; (c) Vehicular/Automobile Liability insurance, including Uninsured Motorist and Medical Payments, covering owned, non-owned, hired, leased or other vehicles associated, directly or indirectly, with the Franchised Business, with limits of not less than the equivalent of $1,000,000 per occurrence combined single limit for bodily injury and property damage; (d) "All Risk" Property insurance covering risk of loss to real and personal property; including but not limited to, Accounts Receivable, Valuable Papers, Glass, Signs, Employees' Tools, Loss of Rents, and other building contents -including flood and earthquake coverage if appropriate for the location of the specific Franchised Business-for repair/replacement coverage and valuation of all assets. This coverage will include Business Income/Extra Expense insurance for extra expenses incurred and/or profits lost due to a covered, "All Risk" peril (Business Interruption Valuation Worksheets will be submitted by Franchisee to Big O annually for evaluation and approval). Any coinsurance provisions should apply only to values reported and should have no adverse impact on claim settlement (an Agreed Amount Endorsement should be obtained, if possible); (e) Inland Marine insurance covering all signs, tools and equipment, and cargo being transported by rail, motortruck, or other common carrier conveyances where the Franchised Business has title or responsibility for transported goods, with limits of no less than $10,000 per any one conveyance; (f) Garage Liability and Garagekeepers Legal Liability insurance covering all vehicle storage, garage premises and other operations arising out of the Franchised Business and non-owned use and/or operation of vehicles, with Garage Liability limits of not less than the equivalent of $2,000,000 per occurrence combined single limit for bodily injury and property damage and Garagekeepers Legal Liability of not less than the equivalent of $100,000 per location; (g) Boiler and Machinery insurance covering all real and personal property; including, but not limited to, pressure vessels, machinery, piping, tubing and other high and low pressurized items at the Franchised Business for the repair/replacement valuation of all assets. This coverage shall include Business Income/Extra Expenses insurance for additional expenses incurred and/or profits lost; (h) Comprehensive Fidelity/Crime insurance covering Employee Dishonesty with limits no less than $25,000; Forgery with limits no less than $10,000; Money and Securities Inside Premises with limits no less than $10,000; and Money and Securities Outside Premises with limits no less than $10,000; and (i) Commercial Umbrella Liability insurance covering all underlying liability insurance coverages enumerated in this section, with no gaps between underlying and umbrella limits or coverage with excess and primary limits of no less than the equivalent of $3,000,000 per occurrence combined single limit for bodily injury and property damage. - 23 - 21.02 Proof of Insurance. Prior to the Commencement Date, Franchisee shall ------------------ make timely delivery of a signed original certificate or certificates of all required insurance coverages to Big O, which shall contain the authorized agent's business name, address and phone number, together with a statement by the insurer that the policy will not be cancelled or materially changed without at least thirty (30) days prior written notice to Big O that the alteration or cancellation is being made. All insurance coverages will be underwritten by a company acceptable to Big O, with a Best's Rating of no less than "A-" or a financial statement of the insurer approved by Big O. If Franchisee fails to purchase required insurance conforming to the standards prescribed by Big O, Big O may obtain such insurance for Franchisee, and Franchisee shall pay Big O the cost of such insurance plus a ten percent (10%) administrative surcharge. 21.03 Survival of Indemnification. The procurement and maintenance of the --------------------------- greater of the prescribed insurance coverages set forth in the Manual or those set forth in the Program shall not relieve Franchisee of any liability to Big O assumed under any indemnification requirement of this Agreement. If Big O deems it appropriate, the Franchisee shall, upon Big O's request, provide to Big O a true, complete certified copy of all, or a part of the Franchisee's insurance policies within 10 days of receiving such request. In addition, upon Big O's request, the Franchisee shall provide to Big O renewal certificates of insurance, or certified insurance binders, for all required coverages no fewer than 10 days before the indicated anniversary date(s) of such insurance coverages. 22. TAXES, PERMITS, AND INDEBTEDNESS 22.01 Payment of Taxes. Franchisee shall promptly pay when due any and all ---------------- federal, state, and local taxes including without limitation, unemployment and sales taxes, levied or assessed with respect to any Products and Services distributed or sold pursuant to this Agreement and all accounts or other indebtedness of every kind incurred by Franchisee in the operation of the Franchised Business. 22.02 Compliance with Laws. Franchisee shall comply with all applicable -------------------- federal, state, and local laws, rules and regulations, including, without limitation, environmental laws related to tire disposal. Franchisee shall obtain any and all permits, certificates, and licenses required for the full and proper conduct of the Franchised Business. 22.03 Payment of Debts. Franchisee hereby expressly covenants and agrees ---------------- to accept full and sole responsibility for any and all debts and obligations incurred in the operation of the Franchised Business. 23. INDEMNIFICATION AND INDEPENDENT CONTRACTOR STATUS 23.01 Indemnification. Franchisee agrees to protect, defend, indemnify, --------------- and hold Big O and its affiliates, their directors, officers, shareholders, employees and agents jointly and severally, harmless from and against all claims, actions, proceedings, damages, costs, expenses and other losses (including death) and liabilities, consequently, directly or indirectly incurred (including, without limitation, attorneys', accountants' and other related fees) as a result of, arising out of, or connected with the operation of the Franchised Business, including, without limitation, the failure of Franchisee to comply with any relevant environmental and tire disposal laws. Franchisee shall not, however, be liable for claims arising exclusively as a result of Big O's intentional or fraudulent acts or omissions or sole negligence. 23.02 Independent Contractor. In all dealings with third parties, ---------------------- including, without limitation, customers, employees, and suppliers, Franchisee shall disclose in an appropriate manner acceptable - 24 - to Big O that it is an independent entity operating under a franchise granted by Big O. Franchisee shall submit all applications and enter into all contracts in its designated corporate name or such other fictitious names which have been approved by Big O, but not in the name "Big O Tires" or in any other name which includes the name "Big O". Nothing in this Agreement is intended by the parties hereto to create a fiduciary relationship between them nor to constitute Franchisee or Franchisee's employees or contractors as an agent, legal representative, subsidiary, joint venturer, partner, employee, or servant of Big O for any purpose whatsoever. It is understood and agreed that Franchisee is an independent contractor and is in no way authorized to make any contract, warranty, or representation or to create or imply any obligation on behalf of Big O. 24. WRITTEN APPROVALS, WAIVERS, AND AMENDMENT 24.01 Written Approval. Whenever this Agreement requires Big O's prior ---------------- approval, Franchisee shall make a timely written request. Unless a different time period is specified in this Agreement, Big O shall respond with its approval or disapproval within fifteen (15) business days. 24.02 Waiver. No failure of Big O to exercise any power reserved to it by ------ this Agreement and no custom or practice of the parties at variance with the terms hereof shall constitute a waiver of Big O's right to demand exact compliance with any of the terms herein. A waiver or approval by Big O of any particular default by Franchisee or any other Big O franchisee or acceptance by Big O of any payments due hereunder shall not be considered a waiver or approval by Big O of any preceding or subsequent breach by Franchisee of any term, covenant, or condition of this Agreement. Big O shall not be deemed to have waived any of its rights under this Agreement, including any right to receive payment in full for any Product or Service provided, nor shall Franchisee be deemed to have been excused from performance of any of its obligations pursuant to this Agreement, unless such waiver or excuse is written and executed by an authorized representative of Big O and Franchisee. 24.03 Modification. No amendment, change, or variance from this Agreement ------------ shall be binding upon either Big O or Franchisee except by mutual written agreement. If an amendment of this Agreement is executed at Franchisee's request, any legal fees or costs of preparation of such amendment and any amendment of a franchise registration arising in connection therewith shall be paid by Franchisee. 25. DEALER PLANNING BOARD 25.01 Dealer Planning Board. Big O has established a Dealer Planning Board --------------------- ("DPB"), consisting of franchisee representatives, which is designed to assist Big O's management in the development of its strategic business plan and to advise Big O's management on issues of concern to Big O franchisees. Through a representative elected from Franchisee's Local Group, Franchisee shall be represented on the DPB. 25.02 Special Interest Issues. Big O has granted the DPB the authority to ----------------------- participate with Big O's management in making policy decisions relating to issues in which the DPB is deemed to have a special interest. The issues of "Special Interest" include: (a) advertising policies and the creation of a National Advertising Fund; (b) standards of operation; and the implementation of new programs which may require the addition of new equipment and fixtures for the store; (c) selection of Products and Services offered at Big O Stores; and - 25 - (d) changes in the Licensed Marks anticipated to require the majority of franchisees to expend more than five thousand dollars ($5,000.00) per Store. 25.03 Disapproval of Management Proposal. With respect to those issues in ---------------------------------- which the DPB has a Special Interest, the DPB may, after consulting with the members of the Local Groups, vote to disapprove a proposal of Big O's management. If, pursuant to established procedures which have been approved by Big O, the DPB shall disapprove a proposal of Big O's management, the proposal may only become effective if, following a presentation to the Big O board of directors by a representative of the DPB, Big O's board of directors votes to adopt management's proposal. 25.04 Compliance with Modification. Franchisee agrees to comply with any ---------------------------- and all modifications to Big O's standards of operation, procedures, or other requirements adopted pursuant to the procedures described in this Section 25. 26. RIGHT OF OFFSET 26.01 Right of Offset. Big O shall have the right at any time before or --------------- after termination of this Agreement, without notice to Franchisee, to offset any amounts or liabilities that may be owed by the Franchisee to Big O against any amounts or liabilities that may be owed by Big O to Franchisee under this Agreement or any other agreement, loan, transaction or relationship between the parties. 27. ENFORCEMENT 27.01 Declaratory and Injunctive Relief. Big O or its designee shall be --------------------------------- entitled to obtain without bond, declarations, temporary and permanent injunctions, and orders of specific performance: (a) To enforce the provisions of this Agreement relating to: (i) Franchisee's use of the Licensed Marks; (ii) the obligations of Franchisee upon termination or expiration of this Agreement; or (iii) the Transfer and Assignment requirements of Section 18; or (b) to prohibit any act or omission by Franchisee or its employees that: (i) constitutes a violation of any applicable law or regulation; (ii) is dishonest or misleading to prospective or current customers or clients of businesses operated under the System; (iii) constitutes a danger to other Big O franchisees, their employees, customers, clients or the public; or (iv) may impair the goodwill associated with the Licensed Marks. 27.02 Costs of Enforcement. If Big O secures any declaration, injunction -------------------- or order of specific performance pursuant to Section 27.01 hereof, if any provision of this Agreement is enforced at any time by Big O or if any amounts due from Franchisee to Big O are, at any time, collected by or through an attorney at law or collection agency, Franchisee shall be liable to Big O for all costs and expenses of enforcement and collection including, but not limited to, court costs and reasonable attorneys' fees, including the fair market value of any time expended by legal counsel employed by Big O. 28. NOTICES 28.01 Notices. Any notice required to be given hereunder shall be in ------- writing and shall be mailed by registered or certified mail. Notices to Franchisee and Big O shall be addressed to them at their addresses as listed on the Summary Pages or to such other addresses as the parties may hereafter prescribe. A copy of each notice to Big O shall be addressed to Franchisee's designated regional representative. Any notice complying with the provisions hereof shall be deemed to be given on the date of mailing. - 26 - 29. GOVERNING LAW 29.01 Governing Law. This Agreement is accepted by Big O in the State of ------------- Colorado and shall be governed by and interpreted in accordance with Colorado law, which law shall prevail in the event of any conflict of law. Big O and Franchisee consent to personal and subject matter jurisdiction and venue in Denver, Colorado. 29.02 Jurisdiction. The parties hereto agree that it is in their best ------------ interest to resolve disputes between them in an orderly fashion and in a consistent manner. Therefore, the parties consent to the exclusive jurisdiction of either Colorado state courts or the United States Federal District Court for the District of Colorado for any litigation relating to this Agreement or the operation of the Franchised Business thereunder. Franchisor and Franchisee irrevocably constitute and appoint the persons designated on paragraphs 10 and 11 of the Summary Pages to be their true and lawful agents, to receive service of any lawful process in any civil litigation or proceeding arising under this Agreement, and service upon such agent shall have the same force and validity as if personal service had been obtained on the other party; provided that notice of service and a copy of any process served shall be sent by registered or certified mail, addressed to the other party at the address specified herein. 30. SEVERABILITY AND CONSTRUCTION 30.01 Severability. Subject to Section 19.01(o), should any part of this ------------ Agreement, for any reason, be declared invalid by a court of competent jurisdiction, such decision or determination shall not affect the validity of any remaining portion and such remaining portion shall remain in force and effect as if this Agreement had been executed with the invalid portion eliminated; provided, however, that in the event of a declaration of invalidity, the provision declared invalid shall not be invalidated in its entirety, but shall be observed and performed by the parties to the extent such provision is valid and enforceable. The parties hereby agree that any such provision shall be deemed to be altered and amended to the extent necessary to effect such validity and enforceability. 30.02 Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which when so executed and delivered shall be deemed an original, but such counterparts together shall constitute one and the same instrument. 30.03 Construction. The headings and captions contained herein are for the ------------ purpose of convenience and reference only and are not to be construed as part of this Agreement. All terms and words used herein shall be construed to include the number and gender as the context of this Agreement may require. The parties agree that each section of this Agreement shall be construed independently of any other section or provision of this Agreement. 31. ACKNOWLEDGEMENTS (a) Big O acknowledges that Franchisee's principal interest in obtaining the Franchise granted herein is to obtain Big O private brand tires and a competitive source of supply for Products and Services. Big O acknowledges its obligation to seek to attempt, with no obligation, to maintain a competitive source of supply for the benefit of its franchisees and to aid in the promotion of Big O Products and Services. (b) Franchisee understands and acknowledges that the business licensed under this Agreement involves business risks and that Franchisee's volume, profit, income and success is dependent primarily upon Franchisee's ability as an independent business operator. - 27 - (c) Big O expressly disclaims the making of, and Franchisee acknowledges that it has not received from any representative of Big O, any warranty or guaranty, express or implied, as to the obligation of Big O to provide Franchisee with any specific or sufficient amount of Products and Services or as to the potential volume, profit, income or success of the Franchised Business. (d) Franchisee acknowledges that Big O or its agent has provided Franchisee with a Franchise Offering Circular not later than the earlier of the first personal meeting held to discuss the sale of the Franchise, ten (10) business days before the execution of this Agreement, or ten (10) business days before any payment of any consideration connected to the purchase of this Franchise. Franchisee further acknowledges that Franchisee has read such Franchise Offering Circular and understands its contents. (e) Franchisee acknowledges that Big O has provided Franchisee with a copy of this Agreement and all related documents, fully completed, for at least five (5) business days prior to Franchisee's execution hereof. (f) Franchisee acknowledges that Big O has advised it to consult with its own attorneys, accountants, or other advisers, that Franchisee has had ample opportunity to do so, and that the attorneys for Big O have not advised or represented Franchisee with respect to this Agreement or the relationship hereby created. The name and address of Franchisee's adviser, if any, is set forth on the Summary Pages. (g) Franchisee acknowledges that this Agreement, the documents referred to herein, the attachments hereto, and other agreements signed concurrently with this Agreement, if any, constitute the entire, full and complete Agreement between Big O and Franchisee concerning the subject matter hereof. This Agreement terminates and supersedes any prior agreement between the parties concerning the same subject matter, and any oral or written representations which are inconsistent with the terms of this instrument and its accompanying Franchise Offering Circular. (h) Franchisee acknowledges and recognizes that different terms and conditions, including different fee structure and investment requirements may pertain to different Big O franchises offered in the past, contemporaneously herewith, or in the future, and that Big O does not represent that all franchise agreements are or will be identical. (i) Franchisee acknowledges that except as is specifically set forth in this Agreement, it is not nor is it intended to be a third party beneficiary of this Agreement or any other agreement or contractual relationship to which Big O is a party. - 28 - IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement to become effective on the date it is executed by the last of Franchisee or Big O. FRANCHISEE: By: ------------------------------------------------------ Date: ---------------------------------------------------- Home Address: -------------------------------------------- --------------------------------------------------------- Home Phone Number: --------------------------------------------------------- Office Address: ------------------------------------------ --------------------------------------------------------- Office Phone Number: ------------------------------------- Title: --------------------------------------------------- Attest: -------------------------------------------------- Title: --------------------------------------------------- (Affix Corporate Seal) FRANCHISEE: By: ------------------------------------------------------ Date: ---------------------------------------------------- Home Address: -------------------------------------------- --------------------------------------------------------- Home Phone Number: --------------------------------------- Office Address: ------------------------------------------ --------------------------------------------------------- Office Phone Number: ------------------------------------- Title: --------------------------------------------------- Attest: -------------------------------------------------- Title: --------------------------------------------------- (Affix Corporate Seal) FRANCHISE: - 29 - BIG O TIRES, INC. By: ------------------------------------------------------ Date: ---------------------------------------------------- Title: --------------------------------------------------- Attest: -------------------------------------------------- Title: --------------------------------------------------- (Affix Corporate Seal) (4/1/94) - 30 - SCHEDULE 1 ---------- TO -- FRANCHISE AGREEMENT ------------------- BETWEEN BIG O TIRES, INC. AND ----------------------------- ------------------------------------------- 1. The Premises of referred to in Section 2.01 of the Franchise Agreement shall be: ---------------------------------------------------------------------------- . ---------------------------------------------------------------------------- 2. Legal Description of Premises: --------------------------------------------- . ------------------------------------------------------------------------------- 3. Names(s) and address(es) of holder(s) of record fee title to Premises (the landlord): Name: ---------------------------------------------------------------- Address: ------------------------------------------------------------- ------------------------------------------------------------- Name: ---------------------------------------------------------------- Address: ------------------------------------------------------------- ------------------------------------------------------------- Name: ---------------------------------------------------------------- Address: ------------------------------------------------------------- ------------------------------------------------------------- 4. Description of Trade Area: Schedule 1 Franchise Agreement Page 1 SCHEDULE 2 ---------- OWNERSHIP VERIFICATION ---------------------- 1. Name(s) and address(es) of person(s) owning interest in Franchisee and percentage of said person(s) interest: Name: --------------------------------------------------------- Address: ------------------------------------------------------ -------------------------------------------------------------- Name: --------------------------------------------------------- Address: ------------------------------------------------------ -------------------------------------------------------------- Name: --------------------------------------------------------- Address: ------------------------------------------------------ -------------------------------------------------------------- STATE OF ) ---------------- ) COUNTY OF ) ---------------- , being first duly sworn, says that they are ----------------------------- respectively, the and of -------------- --------------- -----------------------, the above-named and execute this instrument for and in its ---------------, behalf, by authority of its and that they have read the ----------------------- foregoing Agreement and all Exhibits attached thereto. ------------------------------ ---------------- ------------------------------ ---------------- Subscribed and sworn to before me this day of ----------------- , 19 . -------------------- -- ------------------------------ Notary Public My Commission Expires: -------- Schedule 2 Franchise Agreement Page 1 SCHEDULE 3 ---------- GUARANTY OF FRANCHISEE'S AGREEMENT ---------------------------------- In consideration of, and as an inducement to, the execution of the foregoing Franchise Agreement by Big O Tires, Inc. ("Big O"), each of the undersigned hereby guarantees unto Big O that -------------------------------------------- ("Franchisee") will perform during the term of the Franchise Agreement each and every covenant, payment, agreement and undertaking on the part of Franchisee contained and set forth in or arising out of such Franchise Agreement. Big O, its successors and assigns, may from time to time, without notice to the undersigned (a) resort to the undersigned for payment of any of the liabilities of the Franchisee to Big O, whether or not Big O or its successors have resorted to any property securing any of the liabilities or proceeded against any of the undersigned or any party primarily or secondarily liable on any of the liabilities, (b) release or compromise any liability of the Franchisee or of any of the undersigned hereunder or any liability of any party or parties primarily or secondarily liable on any of the liabilities, and (c) extend, renew or credit any of the liabilities of the Franchisee to Big O for any period (whether or not longer than the original period); alter, amend or exchange any of the liabilities; or give any other form of indulgence, whether under the Franchise Agreement or not. The undersigned further waives presentment, demand, notice of dishonor, protest, nonpayment and all other notices whatsoever, including without limitation: notice of acceptance hereof; notice of all contracts and commitments; notice of the existence or creation of any liabilities under the foregoing Franchise Agreement and of the amount and terms thereof; and notice of all defaults, disputes or controversies between Franchisee and Big O resulting from such Franchise Agreement or otherwise, and the settlement, compromise or adjustment thereof. The undersigned agrees to pay all expenses paid or incurred by Big O in attempting to enforce the foregoing Franchise Agreement and this Guaranty against Franchisee and against the undersigned and in attempting to collect any amounts due thereunder and hereunder, including reasonable attorneys' fees if such enforcement or collection is by or through an attorney-at-law. Any waiver, extension of time or other indulgence granted from time to time by Big O or its agents, successors or assigns, with respect to the foregoing Franchise Agreement, shall in no way modify or amend this Guaranty, which shall be continuing, absolute, unconditional and irrevocable. If more than one person has executed this Guaranty, the term "the undersigned," as used herein shall refer to each such person, and the liability of each of the undersigned hereunder shall be joint and several and primary as sureties. Schedule 3 Franchise Agreement Page 1 IN WITNESS WHEREOF, each of the undersigned has executed this Guaranty under seal effective as of the date of the foregoing Franchise Agreement. ------------------------------------------- Signature ------------------------------------------- Date ------------------------------------------- Printed Name ------------------------------------------- ------------------------------------------- Home Address ------------------------------------------- Home Telephone ------------------------------------------- ------------------------------------------- Business Address ------------------------------------------- Business Telephone Schedule 3 Franchise Agreement Page 2 SCHEDULE 4 ---------- LEASE RIDER AND MODIFICATION ---------------------------- THIS AGREEMENT is made effective by and between ----------------------- ("Landlord"), ("Tenant"), and Big O Tires, ------------------ ------------------- Inc., its affiliates, successors and assigns ("Big O"). WHEREAS, Landlord leases or will lease certain premises to Tenant at ("Premises") under that certain lease ------------------------------------ agreement dated between Landlord and Tenant ("Lease"); and ------------------- WHEREAS, Tenant will operate a Big O Tire Store at such Premises under a Franchise Agreement ("Franchise Agreement") between Tenant and Big O; and WHEREAS, the parties hereto desire to provide Big O with certain rights in the event of default under the Lease, Franchise Agreement, or other franchise agreements between Tenant and Big O, if any; NOW, THEREFORE, in consideration of the sum of One ($1.00) Dollar, in hand paid by Big O to Landlord and to Tenant, and other good and sufficient consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. No act, failure to act, event, condition, non-payment or other occurrence ("Event") shall constitute a breach or default under the Lease so as to allow to Landlord any right of acceleration of obligations thereunder, termination, cancellation or rescission: (a) if the Event is the non-payment of rent, unless such Event is not cured within ten (10) days after Notice of Default (as hereinafter defined) has been received by Big O; (b) if the Event is anything other than the non-payment of rent, unless such Event is not cured within twenty-five (25) days after Notice of Default (as hereinafter defined) has been received by Big O, provided, however, if the Event is of such nature that it cannot reasonably be cured within such twenty-five (25) day period, then, in that case such twenty-five (25) day period shall be extended to a period of such length as is reasonably necessary to cure such Event, provided, however, such period shall be extended only so long as Tenant and/or Big O diligently pursues the cure of such Event. 2. Landlord agrees to accept from Big O any payment or performance required under the Lease. Nothing herein shall be construed as requiring Big O to make any payments or perform any obligation under the Lease. 3. As used herein, Notice of Default means written notice specifying the Event claimed and specifically describing, in each instance of a claimed Event, the particular Event and the cure Landlord requires, such Notice of Default to be mailed to Big O at: Big O Tires, Inc. 11755 East Peakview Avenue Englewood, Colorado 80111 Attention: Vice President of Business Development 4. In the event Landlord claims that an Event has occurred, or in the event Big O notifies Landlord in writing that Big O is exercising a right to take over possession of the Premises, then, at Big O's option, Landlord shall accept Big O as substitute tenant under the Lease and will cooperate with Big O in turning actual, immediate possession of the Premises over to Big O. In such case, the Lease shall remain in full force and effect, but with Big O as the tenant thereunder. Big O's option, hereinabove granted, may be exercised only if Big O agrees to assume the obligations of the Tenant Schedule 4 to Franchise Agreement Page 1 to Landlord under the Lease as of the date Franchisor or its affiliate or successor is given actual possession of the Premises. 5. Landlord agrees that Big O, or its affiliate or successor may sublet or assign the Premises to a new Big O Franchisee on the same terms and conditions as are contained in the Lease. 6. Tenant agrees that if Landlord claims that an Event has occurred, or if any material breach occurs under any Franchise Agreement between Tenant and Big O (whether for the Premises or not), then, Big O shall have the right to: (a) immediate and actual possession of the Premises, and all equipment and inventory therein, which such possession Tenant agrees to give peaceably, and which may be otherwise obtained by Big O by warrant, injunction, temporary restraining order, summary process or such other immediate legal, summary or equitable proceeding or action as Big O may choose. Tenant hereby waives any right to a jury in any such proceeding or action. (b) become the Tenant under the Lease to the exclusion of the Tenant. 7. Tenant agrees that any default under the Lease shall constitute a material breach under all Franchise Agreements between Tenant and Big O, or its affiliates or successors. 8. Tenant and Landlord understand that Big O is entering into or has entered into a Franchise Agreement with Tenant for a Big O Tire Store at the Premises in reliance on the agreements of Tenant and Landlord as herein contained and that Big O, in this instance, would not have otherwise entered into such Franchise Agreement. IN WITNESS WHEREOF, the parties hereto have duly execute and delivered this agreement as of the date first above-listed. LANDLORD By: ---------------------------- -------------------------------- Witness Attest: ---------------------------- ---------------------------- (CORPORATE SEAL) TENANT By: ---------------------------- -------------------------------- Unofficial Witness Attest: ---------------------------- ---------------------------- Notary Public (CORPORATE SEAL) BIG O TIRES, INC. By: ---------------------------- -------------------------------- Unofficial Witness (CORPORATE SEAL) ---------------------------- Notary Public Schedule 4 to Franchise Agreement Page 2 SCHEDULE 5 FARM CLASS RIDER ---------------- Franchisee represents that it reasonably anticipates that at least twenty- five percent (25%) of its Store's Gross Sales on an annual basis will be derived directly from the sale of Farm Class Tires. In reliance on Franchisee's representations, and its consideration for Franchisee to become or remain a Big O franchisee, Big O has offered Franchisee the opportunity to execute this Farm Class Rider. 1. So long as at least twenty-five percent (25%) of Franchisee's Gross Sales on an annual basis are derived directly from Farm Class Tires, Big O agrees to exercise its best efforts to provide Franchisee with access to a supply of Farm Class Tires. Franchisee acknowledges that production and distribution problems occasionally cause supplies to be limited, and that so long as Big O acts in good faith and in a commercially reasonably and lawful manner to obtain access to Farm Class Tires that it shall be deemed in compliance with its obligations hereunder. 2. If Big O fails to comply with its obligations pursuant to Section 1 of this Farm Class Rider and cannot or will not provide Franchisee with access to Farm Class Tires for sixty (60) days following written notice of such failure from Franchisee, as its sole and exclusive remedy, Franchisee shall be relieved of its obligation to pay Big O monthly royalty fees on that portion of its Gross Sales derived directly from the sale of Farm Class Tires. Any services provided by Franchisee in connection with the sale of Farm Class Tires, and any other Products and Services sold by Franchisee in a transaction involving the sale of Farm Class Tires shall be included in the portion of Franchisee's Gross Sales upon which monthly royalty fees are payable. Big O may require Franchisee to provide it with documentation to support any exclusion claimed by Franchisee. 3. Big O may terminate Franchisee's rights under this Farm Class Rider without in any way affecting Franchisee's obligations under the Franchise Agreement if the Store's sales of Farm Class Tires during any twelve (12) month period have been less than twenty-five percent (25%) of its Gross Sales. IN WITNESS WHEREOF, the parties have set forth their signatures below. FRANCHISEE: By: ----------------------------------- Date: --------------------------------- Home Address: ------------------------- -------------------------------------- Home Phone Number: -------------------- Office Address: ----------------------- -------------------------------------- Office Phone Number: ------------------ Title: -------------------------------- Attest: ------------------------------- Title: -------------------------------- (Affix Corporate Seal) Schedule 5 to Franchise Agreement Page 1 FRANCHISEE: By: ----------------------------------- Date: --------------------------------- Home Address: ------------------------- -------------------------------------- Home Phone Number: -------------------- Office Address: ----------------------- -------------------------------------- Office Phone Number: ------------------ Title: -------------------------------- Attest: ------------------------------- Title: -------------------------------- (Affix Corporate Seal) Schedule 5 to Franchise Agreement Page 2 SCHEDULE 6 RIDER FOR EXISTING FRANCHISEES EXECUTING THE -------------------------------------------- FRANCHISE AGREEMENT PRIOR TO THE EXPIRATION ------------------------------------------- OF THEIR PRE-EXISTING FRANCHISE AGREEMENT ----------------------------------------- Franchisee is the owner of a Store which is the subject of a franchise agreement which has not yet expired. Franchisee's execution of the attached Franchise Agreement is subject to the following: 1. Unless otherwise provided herein, the attached Franchise Agreement shall expire on the tenth anniversary of the Effective Date of Franchisee's attached Franchise Agreement, to wit: -----------------------------------. 2. Prior to the expiration of the Franchisee's present franchise agreement, to wit , the monthly continuing services fees (or their functional -------------- equivalent) provided in the present franchise agreement shall continue to be the only such fees due to Big O. In all other respects the terms of the attached Franchise Agreement shall be applicable as of the Effective Date of this Franchise Agreement. In Witness Whereof, the parties have set forth their signature below. BIG O TIRES, INC. By: --------------------------------- Date: ------------------------------- Title: ------------------------------ Attest: ----------------------------- Title: ------------------------------ (Affix Corporate Seal) FRANCHISEE: By: --------------------------------- Date: ------------------------------- Home Address: ----------------------- ------------------------------------ Home Phone Number: ------------------ Office Address: --------------------- Office Phone Number: ---------------- Schedule 6 to Franchise Agreement Page 1 Title: ------------------------------------ Attest: ----------------------------------- Title: ------------------------------------ (Affix Corporate Seal) FRANCHISEE: By: --------------------------------------- Date: ------------------------------------- Home Address: ----------------------------- ------------------------------------------ Home Phone Number: ------------------------ Office Address: --------------------------- ------------------------------------------ Office Phone Number: ---------------------- Title: ------------------------------------ Attest: ----------------------------------- Title: ------------------------------------ (Affix Corporate Seal) Schedule 6 to Franchise Agreement Page 2 SCHEDULE 7 TRADEMARKS ---------- Big O is the sole and exclusive owner of the following trademarks and service marks:
Trademark, Service Mark, Trade Where Registration Name or Logotype Registered Number Registration Date Sonic Principal 805,575 03/15/66 Sonic Commercial Principal 805,578 03/15/66 Super Sonic Principal 805,574 03/15/66 Ultra Sonic Principal 805,577 03/15/66 Winter Sonic Principal 805,581 03/15/66 Sun Valley Principal 871,318 06/17/69 Sonic & Design Principal 890,380 05/05/70 Sonic Principal 891,936 06/02/70 Maxima Principal 926,329 12/28/71 Golden Sonic Power Principal 962,580 07/03/73 Super S Principal 981,992 04/09/74 Saxon Principal 982,828 04/30/74 Big O Principal 993,415 09/24/74 Big O Principal 994,466 10/01/74 Sonic Vagabond Principal 996,459 10/22/74 Big Ride Principal 1,009,148 04/22/75 Big Steel Principal 1,012,897 06/10/75 Sonic Sahara Principal 1,013,509 06/17/75 Big Trak Principal 1,016,826 07/29/75 Big Haul Principal 1,018,800 08/26/75 Protectors of Safety Saxon and Design Principal 1,024,138 11/04/75 Design of Human Likeness "Sebastian Treadmore" Principal 1,044,068 07/20/76 Big Foot 70 Principal 1,102,059 09/12/78 Big Foot 60 Principal 1,102,058 09/12/78 Big Sur Principal 1,219,035 12/07/82 Extra Care and Design Principal 1,417,730 11/18/86 Legacy Principal 1,393,967 05/20/86 Aspen Principal 1,508,041 10/11/88 Exotic Principal 1,511,711 11/08/88
Schedule 7 to Franchise Agreement Page 1 Big O Tires and Design Principal 1,559,725 10/10/89 Sun Valley III Principal 1,588,734 03/27/90 Big O Tires and Design Principal 1,611,160 08/28/90 Optima Principal 74/198,278 Pending Procomp & Design Principal 74/298,320 Pending Vail Principal 74/310,463 Pending Arapahoe Principal 74/271,501 Pending Alpine Principal 74/310,467 Pending Aztec Principal 74/310,465 Pending Hydro-Trac Principal 74/357,214 Pending A Reputation You Can Ride On Principal 74/360,838 Pending Big Foot Principal 74/389,931 Pending STATE REGISTRATIONS Big O Texas 40,967 11/01/82 Big O Texas 40,704 09/02/82 Boss Colorado T28335 04/23/85 Legacy Colorado T29645 10/28/85 Extra Care Colorado T30670 04/22/86
Schedule 7 to Franchise Agreement Page 2 SCHEDULE 8 CONVERTOR RIDER --------------- AMENDMENT TO BIG O FRANCHISE AGREEMENT (CONVERSION) Big O TIRES, INC. ("Big O") and ------------------------------------------ ("Franchisee") entered into a certain Big O Franchise Agreement ("Agreement") on , 19 and desire to supplement and amend certain terms and ---------------- -- conditions of such Agreement in consideration of Franchisee's conversion of a currently operating tire store to a Big O Store. The parties therefore agree as follows: 1. The following paragraph is hereby added to 6.03: Notwithstanding any provision herein to the contrary, Franchisee's obligation to comply with Big O's standards and specifications as are set forth in the Manual shall be phased in for a period of six months from the Commencement Date of the Agreement in accordance with Schedule A, ---------- attached hereto and by this reference incorporated herein. Franchisee will be permitted to use Big O's trademarks, service marks, logos and other identifying symbols or names, in its signage, advertising and otherwise, in conjunction with any other previous signage or identifying symbols or names for sixty (60) days from the Commencement Date of this Agreement, in a manner which shall be approved by Big O, which approval shall not be unreasonably withheld. Upon expiration of such sixty day period, Franchisee must use Big O's signage exclusively and remove all other previous signage. 2. Section 6.05 is deleted in its entirety and the following is inserted in its place: 6.05 Commencement of Business. The Big O Store shall be ------------------------ considered to have commenced operation as of the Commencement Date of this Agreement. All modifications required to bring the premises into compliance with the standards and specifications of Big O must be completed within six (6) months of the Commencement Date. 3. Section 7.01(a) is hereby deleted in its entirety and the following is inserted in its place: (a) Franchisee acknowledges that Big O is under no obligation to provide site selection assistance and Big O does not guarantee the success or profitability of the Franchisee's current site in any manner whatsoever. If Franchisee leases the Premises upon which the Store is to be operated, Franchisee agrees to use its best efforts to negotiate with its landlord for execution of a conditional lease assignment in a form which is the same as or similar to the one found on Schedule 4. 4. The following language shall be added to Section 7.01(b): Big O will provide Franchisee with sample blueprints for modification of the interior and exterior of Franchisee's premises, if applicable, but makes no representations or guarantees regarding the suitability of such blueprints for required modification of Franchisee's premises. Schedule 8 to Franchise Agreement Page 1 5. Franchisee agrees to convert all other tire stores owned or controlled by it into Big O Stores, in the manner prescribed in Schedule B, attached hereto ---------- and by this reference incorporated herein. 6. The terms and conditions of this Conversion Amendment are in addition to or in explanation of the existing terms and conditions of the Agreement and shall prevail over and supersede any inconsistent terms and conditions thereof. Effective this day of , 199 . ------- ----------------- -- BIG O TIRES, INC. FRANCHISEE: ------------------------------------ (Print Name) By: By: ------------------------------ ------------------------------------ Title: Title: --------------------------- --------------------------------- Schedule 8 to Franchise Agreement Page 2 EX-10.62 3 MULTI TENANT LEASE EXHIBIT 10.62 MULTI-TENANT LEASE--NNN 1. BASIC PROVISIONS ("BASIC PROVISIONS"). 1.1 PARTIES: This lease ("LEASE"), dated for reference purposes only, December 1, 1994, is made by and between BOTAC VI LEASING L.L.C., A UTAH LIMITED LIABILITY COMPANY ("LESSOR") and BIG O DEVELOPMENT, INC., A COLORADO CORPORATION ("LESSEE"), (collectively the "PARTIES," or individually a "PARTY"). 1.2 PREMISES: That certain portion of the Building, consisting of approximately 18,000 square feet of office space ("Office Space") and approximately 5,000 square feet of warehouse space ("Warehouse Space") including all improvements therein, situate on the real property described as: Lot 5, Lincoln Executive Center, an administrative replat of Lot 5, Filing no. 1, commonly known by the street address of 11755 East Peakview Avenue, located in the City of Englewood, County of Arapahoe, State of Colorado, with zip code 80111, as outlined on Exhibit "A" attached hereto ("PREMISES"). The "BUILDING" is that certain building containing the Premises and generally described as office/warehouse. In addition to Lessee's rights to use and occupy the Premises as hereinafter specified, Lessee shall have non-exclusive rights to the Common Areas (as defined in Paragraph 2.3 below) "COMMON AREAS" as hereinafter specified, but shall not have any rights to the roof or exterior walls of the Building. The Premises, the Building, the Common Areas, the land upon which they are located, along with all other buildings and improvements thereon, are herein collectively referred to as the "LEASED PREMISES." (Also see Paragraph 2.) 1.3 PARKING: 51 unreserved parking spaces (UNRESERVED PARKING SPACES"); and 9 reserved vehicle parking spaces ("RESERVED PARKING SPACES"). (Also see Paragraph 2.2) 1.4 TERM: Three (3) years and Zero (0) months ("ORIGINAL TERM") commencing APRIL 1, 1995 ("COMMENCEMENT DATE") and ending MARCH 31, 1998 ("EXPIRATION DATE"). 1.5 BASE RENT: Zero Dollars ($0) per month for the OFFICE SPACE AND $3.00 PER SQUARE FOOT PER YEAR FOR THE WAREHOUSE SPACE ("BASE RENT"), payable on the first day of each month commencing commencement of extended term. (Also see Paragraph 4.) 1.6 BASE RENT PAID UPON EXECUTION: Zero Dollars ($0) for the Office Space and the first month's Base Rent of One Thousand Two Hundred Fifty and NO/100 Dollars ($1,250.00) for the Warehouse Space as Base Rent for the Original Term. 1.7 LESSEE'S SHARE OF COMMON AREA OPERATING EXPENSES: ("Lessee's Share"). 1.8 SECURITY DEPOSIT: $0 ("SECURITY DEPOSIT"). 1.9 PERMITTED USE: general office purposes for the OFFICE SPACE AND WAREHOUSE USES FOR THE WAREHOUSE SPACE ("PERMITTED USE") (Also see Paragraph 5.) 1.10 INSURING PARTY. Lessor is the "INSURING PARTY." (Also see Paragraph 6.) 1.11 REAL ESTATE BROKERS. Not applicable. 1.12 GUARANTOR. Not applicable. 2. PREMISES, PARKING AND COMMON AREAS. 2.1 LETTING. Lessor hereby Leases to Lessee, and Lessee hereby leases from Lessor, the Leased Premises, for the term, at the rental, and upon all of the terms, covenants and condition set forth in this Lease. Unless otherwise provided herein, any statement of square footage set forth in this Lease, or that may have been used in calculating rental and/or Common Area Operating Expenses, is an approximation which Lessor and Lessee agree is reasonable and the rental and Lessee's Share (as defined in Paragraph 1.7). 2.2 VEHICLE PARKING. Lessee shall be entitled to use the number of Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph 1.3 on those portions of the Common Areas designated from time to time by Lessor for parking. 2.3 COMMON AREAS - DEFINITION. The term "Common Areas" is designed as all areas and facilities outside the Premises and within the exterior boundary line of the Leased Premises that are provided and designated by the Lessor from time to time for the general non-exclusive use of Lessor, Lessee and other lessees of the Leased Premises and their respective employees, suppliers, shippers, customers, contractors and invitees, including parking areas, access to the Premises, loading and unloading areas, trash areas, roadways, sidewalks, walkways, parkways, driveways and landscaped areas. 2.4 COMMON AREAS - LESSEE'S RIGHTS. Lessor hereby grants to Lessee, for the benefit of the Lessee and its employees, suppliers, shippers, contractors, customers and invitees, during the term of this Lease, the non-exclusive right to use, in common with others entitled to such use, the Common Areas as they exist from time to time, subject to any rights, powers, privileges reserved by Lessor under the terms hereof or under the terms of any rules and regulations or restrictions governing the use of the Leased Premises. 2.5 COMMON AREAS - RULES AND REGULATIONS. Subject to the provisions of this Lease, Lessor or such other person(s) as Lessor may appoint and shall have the exclusive control and management of the Common Areas and shall have the right, from time to time, to establish, modify, amend and enforce reasonable Rules and Regulations with respect thereto in accordance with Paragraph 29. Lessee agrees to abide by and conform to all such Rules and Regulations, and to cause its employees, suppliers, shippers, customers, contractors 1 and invitees to so abide and conform. Lessor shall not be responsible to Lessee for the non-compliance with said rules and regulations by other lessees of the Leased Premises. 3. TERM. The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.4. 4. RENT. 4.1 BASE RENT. Lessee shall pay Base Rent and other rent or charges, as the same may be adjusted from time to time, to Lessor in lawful money of the United States, without offset or deduction, on or before the day on which it is due under the terms of this Lease. Base Rent and all other rent and charges for any period during the term hereof which is for less than one full month shall be prorated based upon the actual number of days of the month involved. Payment of Base Rent and other charges shall be made to the Lessor at its address stated herein or to such other persons or at such other addresses as Lessor may from time to time designate in writing to Lessee. 4.2 COMMON AREA OPERATING EXPENSES. Lessee shall pay to Lessor during the term hereof, in addition to the Base Rent, Lessee's Share (as specified in Paragraph 1.7) of all Common Area Operating Expenses, as hereinafter defined, during each calendar year of the term of this Lease, in accordance with the following provisions: (a) "COMMON AREA OPERATING EXPENSES" are defined, for purposes of this Lease, are all costs incurred by Lessor relating to the ownership and operation of the Leased Premises, including, but not limited to, the following: i. The operation, repair and maintenance, in neat, clean, good order and condition, of the following: 1. The Common Areas, including parking areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways, parkways, driveways, landscaped areas, striping, bumpers, irrigation systems, Common Area lighting facilities, fences and gates, elevators and roof. 2. Fire detection and sprinkler systems. ii. Trash disposal and property management. iii. Maintenance of Common Areas. iv. Base Real Property Taxes and any increases in such taxes (as defined in Paragraph 8.2(b) for the Building and the Common Areas. v. Insurance Costs (as defined in Paragraph 6.1). vi. The cost of insurance carried by Lessor with respect to the Common Areas. vii. Any other services to be provided by Lessor that are stated elsewhere in this Lease to be a Common Area Operating Expense. (b) Lessee's Share of Common Area Operating Expenses shall be payable by Lessee within ten (10) days after a reasonably detailed statement of actual expenses is presented to Lessee by Lessor. At Lessor's option, however, an amount may be estimated by lessor from time to time of Lessee's Share of Annual Common Area Operating Expenses and the same shall be payable quarterly, during each 12-month period of the Lease term, on the same day as the Base Rent is due hereunder. Lessor shall deliver to Lessee within sixty (60) days after the expiration of each calendar year a reasonably detailed statement showing Lessee's Share of the Actual Common Area Operating Expenses incurred during the preceding year. If Lessee's payments under this Paragraph 4.2(b) during said preceding year exceed Lessee's Share as indicated on said statement, Lessor shall credit the amount of such overpayment against Lessee's Share of Common Area Operating Expenses next becoming due. If Lessee's payments under this Paragraph 4.2(b) during said preceding year were less than Lessee's Share as indicated on said statement, Lessee shall pay to Lessor the amount of the deficiency within ten (10) days after delivery by Lessor to Lessee of said statement. (c) Since Lessee is leasing most of the Office Space and a small portion of the Warehouse Space in the Leased Premises and most of the remaining space in the Leased Premises is for warehouse use, Lessor and Lessee will have to allocate the Common Area Operating Expenses, by mutual agreement between them and the other lessee(s), so as to fairly allocate such expenses, based on the unique uses of each lessee. In the event the parties fail to reach a mutual agreement as to the allocation of the Common Area Operating Expenses, or to re- allocate them due to changes in circumstances in any Lessee's use of the Leased Premises, the parties will resolve such disputes under the procedures of the American Arbitration Association. 2 5. USE. 5.1 PERMITTED USE. (a) Lessee shall use and occupy the Premises only for the Permitted Use set forth in Paragraph 1.9, or any other legal use which is reasonably comparable thereto, and for no other purpose. Lessee shall not use or permit the use of the Premises in a manner that is unlawful, creates waste or a nuisance, or that disturbs owners and or occupants of, or causes damage to the Premises or neighboring premises or properties. (b) Lessor hereby agrees to not unreasonably withhold or delay its consent to any written request by Lessee, Lessee's assignees or subtenants, and by prospective assignees and subtenants of Lessee, its assignees and subtenants, for a modification of said Permitted Use, so long as the same will not impair the structural integrity of the permissible pursuant to this Paragraph 5. If Lessor elects to withhold such consent, Lessor shall within five (5) business days after such request give a written notification of same, which notice shall include an explanation of Lessor's reasonable objections to the change in use. 5.2 LESSEE'S OBLIGATIONS. (a) Subject to the provisions of Paragraphs 5.3 (Lessor's Obligations), 7 (Damage or Destruction), and 12 (Condemnation), Lessee shall, at Lessee's sole cost and expense and at all times, keep the Premises and every part thereof in good order, condition and repair, including, without limiting the generality of the foregoing, all equipment or facilities specifically serving the Premises, such as plumbing, heating, air conditioning, ventilating, electrical, lighting facilities, boilers, fired or unfired pressure vessels, fire hose connections if within the Premises, fixtures, interior walls, interior surfaces of exterior walls, ceilings, floors, windows, doors, plate glass, and skylights, but excluding any items which are the responsibility of Lessor pursuant to Paragraph 5.3 below. Lessee, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices. (b) Lessee shall, at Lessee's sole cost and expense, procure and maintain a contract, with copies to Lessor, in customary form and substance for and with a contractor specializing and experienced in the inspection, maintenance and service of the heating, air conditioning and ventilation system for the Premises. However, Lessor reserves the right, upon notice to Lessee, to procure and maintain the contract for the heating, air conditioning and ventilating systems, and if Lessor so elects, Lessee shall reimburse Lessor, upon demand, for the cost thereof. (c) If Lessee fails to perform Lessee's obligations under this Paragraph 5.2, Lessor may enter upon the Premises after ten (10) days' prior written notice to Lessee (except in the case of an emergency, in which case no notice shall be required), perform such obligations on Lessee's behalf, and put the Premises in good order, condition and repair. 5.3 LESSOR'S OBLIGATIONS. Subject to the provisions of 4.2 (Common Area Operating Expenses), 5 (Use), 5.2 (Lessee's Obligations), 7 (Damage or Destruction) and 12 (Condemnation), Lessor shall keep in good order, condition and repair the foundations, exterior walls, structural condition of interior bearing walls, exterior roof, fire sprinkler and/or standpipe and hose (if located in the Common Areas) or other automatic fire extinguishing system including fire alarm and/or smoke detection systems and equipment, fire hydrants, parking lots, walkways, parkways, driveways, landscaping, fences, signs and utility systems serving the Common Areas and all parte thereof, as well as providing the services for which there is a Common Area Operating Expense pursuant to Paragraph 4.2. 5.4 UTILITY INSTALLATIONS, TRADE FIXTURES, ALTERATIONS. (a) DEFINITIONS; CONSENT REQUIRED. The term "Utility Installations" is used in this Lease to refer to all air lines, power panels, electrical distribution, security, fire protection systems, communications systems, lighting fixtures, heating, ventilating and air conditioning equipment, plumbing, and fencing in, on or about the Premises. The term "Trade Fixtures" shall mean Lessee's furniture and equipment which can be removed without doing material damage to the Premises. The term "Alterations" shall mean any modification of the improvements on the Premises which are provided by Lessor under the terms of this Lease, other than Utility Installations or Trade Fixtures. "Lessee-Owned Alterations and/or Utility Installations" are defined as Alterations and/or Utility Installations made by Lessee that are not owned by Lessor. Lessee shall not make nor cause to be made any Alterations or Utility Installations in, on, under or about the Premises without Lessor's prior written consent. Lessee may, however, make non-structural Utility Installations to the interior of the Premises (including the roof) without Lessor's consent but upon notice to Lessor, so long as they are not visible from the outside of the Premises, do not involve puncturing, relocating or removing the roof or any existing walls, or changing or interfering with the fire sprinkler or fire detection systems. 3 (b) CONSENT. Any alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with detailed plans. All consents given by Lessor, shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits required by governmental authorities; (ii) the furnishing of copies of such permits together with a copy of the plans and specifications for the Alteration or Utility Installation to Lessor prior to commencement of the work thereon; and (iii) the compliance by Lessee with all conditions of said permits in a prompt and expeditious manner. Any Alterations or Utility Installations by Lessee during the term of this Lease shall be done in a good and workmanlike manner, with good and sufficient materials, and be in compliance with all Applicable Requirements. Lessee shall promptly upon completion thereof furnish Lessor with as-built plans and specifications therefor. (c) LIEN PROTECTION. Lessee shall pay when due all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises, which claims are or may be secured by any mechanic's or materialmen's lien against the Premises or any interest therein. Lessee shall give Lessor not less than ten (10) days' notice prior to the commencement of any work in, on, or about the Premises, and Lessor shall have the right to post notices of non-responsibility in or on the Premises as provided by law. If Lessee shall, in good faith, contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense, defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof against the Lessor or the Premises. 5.5 OWNERSHIP, SURRENDER, AND RESTORATION. (a) OWNERSHIP. All Alterations and Utility Installations made to the Premises by Lessee shall be the property of and owned by Lessee, but considered a part of the Premises. (b) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the end of the last day of the Lease term or any earlier termination date, clean and free of debris and in good operating order, condition and state of repair, ordinary wear and tear excepted. Lessee's Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee subject to its obligation to repair and restore the Premises per this Lease. 6. INSURANCE; INDEMNITY. 6.1 PAYMENT OF PREMIUMS. (a) As used herein, the "Insurance Costs" is defined as the actual cost of the insurance applicable to the Building and required to be carried by Lessor pursuant to Paragraphs 6.2(b), 6.3(a) and 6.3(b), ("Required Insurance"), as hereinafter defined, calculated on an annual basis. "Insurance Costs" shall include, but not be limited to, requirements of the holder of a mortgage or deed of trust covering the Premises, increased valuation of the Premises, and/or a general premium rate increase. The "Base Premium" shall be the lowest annual premium reasonably obtainable for the Required Insurance as of the Commencement Date. In no event, however, shall Lessee be responsible for any portion of the premium cost attributable to liability insurance coverage in excess of $2,000,000 procured under Paragraph 6.2(b). (b) Lessee shall pay any Insurance Costs to Lessor pursuant to Paragraph 4.2. Premiums for policy periods commencing prior to, or extending beyond, the term of this Lease shall be prorated to coincide with the corresponding Commencement Date or Expiration Date. 6.2 LIABILITY INSURANCE. (a) CARRIED BY LESSEE. Lessee shall obtain and keep in force during the term of this Lease a Commercial General Liability policy of insurance protecting Lessee, Lessor and any Lender(s) whose names have been provided to Lessee in writing (as additional insureds) against claims for bodily injury, personal injury and property damage based upon, involving or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $1,000,000 per occurrence. The policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an "insured contract" for the performance of Lessee's indemnify obligations under this Lease. (b) CARRIED BY LESSOR. Lessor shall also maintain liability insurance described in Paragraph 6.2(a) above, in addition to and not in lieu of, the insurance required to be maintained by Lessee. 4 6.3 PROPERTY INSURANCE - BUILDING, IMPROVEMENTS AND RENTAL VALUE. (a) Building and Improvements. Lessor shall obtain and keep in force during the term of this Lease a policy or policies in the name of Lessor, with loss payable to Lessor and to any Lender(s), insuring against loss or damage to the Premises. Such insurance shall be for full replacement cost, as the same shall exist from time to time, or the amount required by any Lender(s), but in no event more than the commercially reasonable and available insurable value thereof of, by reason of the unique nature or age of the improvements involved, such latter amount is less than full replacement cost. Lessee-Owned Alterations and Utility Installations, Trade Fixtures and Lessee's personal property shall be insured by Lessee pursuant to Paragraph 6.4. Lessor's policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood and/or earthquake unless required by a Lender or included in the Base Premium), including coverage for any additional costs resulting from debris removal and reasonable amounts of coverage for the enforcement of any ordinance or law regulating the reconstruction or replacement of any undamaged sections of the Building required to be demolished or removed by reason of the enforcement of any building, zoning, safety or land use laws as the result of a covered loss, but not including plate glass insurance. Said policy or policies shall also contain an agreed valuation provision in lieu of any co-insurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where the Premises are located. (b) RENTAL VALUE. Lessor shall also obtain and keep in force during the term of this Lease a policy or policies in the name of Lessor, with loss payable to Lessor and any Lender(s), insuring the loss of the full rental and other charges payable by all lessees of the Building to Lessor for one year (including all Real Property Taxes, insurance costs, all Common Area Operating Expenses and any scheduled rental increases). Said insurance may provide that in the vent the Lease is terminated by reason of an insured loss, the period of indemnify for such coverage shall be extended beyond the date of the completion of repairs or replacement of the Premises, to provide for one full year's loss of rental revenues from the date of any such loss. Said insurance shall contain an agreed valuation provision in lieu of any co-insurance clause, and the amount of coverage shall be adjusted annually to reflect the projected rental income, Real Property Taxes, insurance premium costs and other expenses, if any, otherwise payable, for the next 12-month period. (c) LESSEE'S IMPROVEMENTS. Since Lessor is the Insuring Party, Lessor shall not be required to insure Lessee-Owned Alterations and Utility Installations unless the item in question has become the property of Lessor under the terms of this Lease. 6.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph 6.5, Lessee at its cost shall either by separate policy or, at Lessor's option, by endorsement to a policy already carried, maintain insurance coverage on all of Lessee's personal property, Trade Fixtures and Lessee-Owned Alterations and Utility Installations in, on, or about the Premises similar in coverage to that carried by Lessor as the Insuring Party under Paragraph 6.3(a). The proceeds from any such insurance shall be used by Lessee for the replacement of personal property and the restoration of Trade Fixtures and Lessee-Owned Alterations and Utility Installations. Upon request from Lessor, Lessee shall provide Lessor with written evidence that such insurance is in force. 6.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies duly licensed to transact business in the state where the Premises are located, and maintaining during the policy term a "General Policyholders Rating" of at least B+, V, or such other rating as may be required by a Lender, as set forth in the most current issue of "Best's Insurance Guide." Lessee shall cause to be delivered to Lessor, within seven (7) days after the earlier of the Early Possession Date or the Commencement Date, certified copies of, or certificates evidencing the existence and amounts of, the insurance required under Paragrah 6.2(a) and 6.4. No such policy shall be cancelable or subject to modification except after thirty (30) days' prior written notice to Lessor. Lessee shall at least thirty (30) days prior to the expiration of such policies, furnish Lessor with evidence of renewals or "insurance binders" evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand. 6.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies, Lessee and Lessor each hereby release and relieve the other, and waive their entire right to recover damages (whether in contract or in tort) against the other, for loss or damage to their property arising out of or incident to the perils required to be insured against under Paragraph 6. The effect of such releases and waivers of the right to recover damages shall not be limited by the amount of insurance carried or required, or by any deductibles applicable thereto. Lessor and Lessee agree to have their respective insurance companies issuing property damage insurance waive any right to subrogation that such companies may have against Lessor or Lessee, as the case may be, so long as the insurance is not invalidated thereby. 6.7 INDEMNITY. Except for Lessor's negligence and/or breach of express warranties, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor's master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, costs, liens, judgments, penalties, loss of permits, attorneys' and consultants' fees, expenses and/or liabilities arising out of, involving, or in connection with, the occupancy of the Premises by Lessee, the conduct of Lessee's business, any act, omission or neglect ,of Lessee, its agents, contractors, employees or invitees, and out of any Default or Breach by Lessee in the performance in a timely manner of any obligation on Lessee's part to be performed under the Lease. The foregoing shall include, but not be limited to, the defense or pursuit of any claim or any action or proceeding involved therein, and whether or not (in the case of claims 5 made against Lessor) litigated and/or reduced to judgment. In case any action or proceeding be brought against Lessor by reason of any of the foregoing matters, Lessee upon notice from Lessor shall defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be so indemnified. 7. DAMAGE OR DESTRUCTION. 7.1 DEFINITIONS. (a) "PREMISES PARTIAL DAMAGE" shall mean damage, or destruction to the Premises, other than Lessee Owned Alterations and Utility Installations, the repair cost of which damage or destruction is less than fifty percent(50%) or of the then Replacement Cost (as defined in Paragraph 7.1(d) of the Premises (excluding Lessee-owned alterations and Utility Installations and Trade Fixtures) immediately prior to such damage or destruction. (b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to the Premises, other than Lessee-Owned Alterations and Utility Installations, the repair cost of which damage or destruction is fifty percent (50 %) or more of the then Replacement Cost of the Premises (excluding Lessee-Owned Alterations and Utility Installations and Trade Fixtures) immediately prior to such damage or destruction. In addition, damage or destruction to the Building, other than Lessee-Owned Alterations and Utility Installations and Trade Fixtures of any lessees of the Building, the cost of which damage or destruction is fifty percent (50%) or more of the then Replacement Cost (excluding Lessee owned alterations and utility installments and trade fixtures of any Lessees of the building) of the Building shall, at the option of Lessor, be deemed to be Premises Total Destruction. (c) "INSURED LOSS" shall mean damage or destruction to the Premises, other than Lessee-Owned Alterations and Utility Installations and Trade Fixtures, which was caused by an event required to be covered by the insurance described in Paragraph 6.3 (a)irrespective of any deductible amounts or coverage limits involved. (d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of applicable building codes, ordinances or laws, and without deduction for depreciation. 7.2 PARTIAL DAMAGE-INSURED LOSS. If Premises Partial Damage that is an Insured Loss occurs, then Lessor shall,at Lessor's expense, repair such damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and Utility Installations) as soon as reasonably possible and this shall continue in full force and effect. If Lessor receives said funds or adequate assurance thereof within said ten (10) day period, Lessor shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect. If Lessor does not receive such funds or assurance within said period, Lessor may nevertheless elect by written notice to lessee within ten (10) days thereafter to make such restoration and repaid as is commercially reasonable with Lessor paying any shortage in proceeds, in which case this Lease shall remain in full force and effect. If Lessor does not receive such funds or assurance within such ten (10) day period, and if Lessor does not so elect to restore and repair, then this Lease shall terminate sixty (60) days following the occurrence of the damage or destruction. 7.3 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if Premises Total Destruction occurs (including any destruction required by any authorized public authority), this Lease shall terminate sixty (60) days following the date of such Premises Total Destruction, whether or not the damage or destruction is an Insured Loss or was caused by a negligent or willful act of Lessee. 7.4 ABATEMENT OF RENT; LESSEE'S REMEDIES. (a) In the event of (i) Premises Partial Destruction, the base Rent and the Common Area Operating Expenses and other charges, if any, payable by Lessee hereunder for the period during which such damage or condition, its repair, remediation or restoration continues, shall be abated in proportion to the degree to which Lessee's use of the Premises is impaired. (b) If Lessor shall be obligated to repair or restore the Premises under the provisions of this Paragraph 7 and shall not commence, in a substantial and meaningful way, the repair or restoration of the Premises within ninety (90) days after such obligation shall accrue, Lessee may, at any time prior to the commencement of such repair or restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice of Lessee's election to terminate this Lease on a date not less than sixty (60) days following the of such notice. If Lessee gives such notice to Lessor and such Lenders and such repair or restoration is not commenced within thirty (30) days after receipt of such notice, this Lease shall terminate as of the date specified in said notice. If Lessor or a Lender commences the repair or restoration of the Premises within thirty (30) days after the receipt of such notice, this Lease shall continue in full force and effect. "Commence" as used in this Paragraph 7.4 shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the premises , whichever occurs first. 6 7.5 TERMINATION. Upon termination of this Lease pursuant to this Paragraph 7, Lessor shall return to Lessee any advance payment made by Lessee to Lessor and so much of Lessee's Security Deposit as has not been, or is not then required to be, used by Lessor under the terms of this Lease. 8. REAL PROPERTY TAXES. 8.1 Payment of Taxes. Lessor shall pay the Real Property Taxes, as defined in Paragraph 8.2(a), applicable to the Leased Premises, and except as otherwise provided in Paragraph 8.3, the Base Real property Taxes and any increases in such taxes shall be included in the calculation of Common Area Operating Expenses in accordance with the provisions of Paragraph 4.2. 8.2 REAL PROPERTY TAX DEFINITIONS. (a) As used herein, the term Real Property Taxes, shall include any form of real estate tax or assessment, general, special, ordinary or extraordinary, and any license fee, commercial rental tax, improvement bond or bonds, levy or tax (other than inheritance, personal income or estate taxes) imposed upon the Leased Premises by any authority having the direct or indirect power to tax, including any city, state or federal government, or any school, agricultural, sanitary, fire, street, drainage, or other improvement district thereof, levied against any legal or equitable interest of Lessor in the Leased Premises or any portion thereof, Lessor's right to rent or other income therefrom, and/or Lessor's business of leasing the premises. The term 'Real Property Taxes' shall also include any tax, fee, levy, assessment or charge, or any increase therein, imposed by reason of events occurring, or changes in Applicable law taking effect, during the term of this Lease, including but not limited to a change in the ownership of the Leased Premises or in the improvements thereon, the execution of this Lease, or any modification, amendment or transfer thereof, and whether or not contemplated by the Parties. (b) As used herein, the term 'Base Real Property Taxes" shall be the amount of Real Property Taxes, which are assessed against the Premises, Building or Common Areas in the calendar year during which the Lease is executed. In calculating Real Property Taxes for any calendar year, the Real Property Taxes for any real estate tax year shall be included in the calculation of Real Property Taxes for such calendar year based upon the number of days which such calendar year and tax year have in common. 8.3 ADDITIONAL IMPROVEMENTS. Common Area Operating Expenses shall not include Real Property Taxes specified in the tax assessor's records and work sheets as being caused by additional improvements placed upon the Leased Premises by other lessees or by Lessor for the exclusive enjoyment of such other lessees. Notwithstanding Paragraph 8.1 hereof, Lessee shall, however, pay to Lessor at the time Common Area Operating Expenses are payable under Paragraph 4.2, the entirety of any increase in Real Property Taxes if assessed solely by reason of Alterations, Trade Fixtures or Utility Installations placed upon the Premises by Lessee or at Lessee's request. 8.4 LESSEE'S PROPERTY TAXES. Lessee shall pay prior to delinquency all taxes assessed against and levied upon Lessee-owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and all personal property of Lessee contained in the Premises or stored within the Leased Premises. When possible, Lessee shall cause its Lessee-Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor. If any of Lessee's said property shall be assessed with Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee's property within ten (10) days after receipt of a written statement setting forth the taxes applicable to Lessee's property. 9. UTILITIES. Lessee shall pay directly for all utilities and services supplied to the Premises, including but not limited to electricity, telephone, security, gas and cleaning of the Premises, together with any taxes thereon. If any such utilities or services are not separately metered to the Premises or separately billed to the Premises, Lessee shall pay to Lessor a reasonable proportion to be determined by mutual agreement of Lessor and Lessee of all such charges jointly metered or billed with other premises in the Building, in the manner and within the time periods set forth in Paragraph 4.2(b). 10. ASSIGNMENT AND SUBLETTING. 10.1 LESSOR'S CONSENT REQUIRED. (a) Lessee shall not voluntarily or by operation of law assign, transfer, mortgage or otherwise transfer or encumber (collectively, "assign") or sublet all or any part of Lessee's interest in this Lease or in the Premises without Lessor's prior written consent, which consent shall not be unreasonably withheld. (b) and assignment or subletting of Lessee's interest in this Lease without Lessor's specific prior written consent shall, at Lessor's option, be a Default curable after notice per Paragraph 11.1. (c) Regardless of Lessor's consent, any assignment or subletting shall not (i) be effective without the express written assumption by assignee or sublessee of the obligations of the Lessee under this Lease, (ii) release the Lessee of any obligations hereunder 7 nor (iii) alter the primary liability of Lessee for the payment of Base Rent and other sums due Lessor hereunder or for the performance of any other obligations to be performed by Lessee under this Lease. (d) The consent of Lessor to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting by Lessee or to any subsequent or successive assignment or subletting by the assignee or sublessee. 11. DEFAULT; BREACH. 11.1 A "DEFAULT" by Lessee is defined as a failure by Lessee to observe, comply with or perform any of the terms, covenants, conditions or rules applicable to Lessee under this Lease. A "BREACH" by Lessee is defined as the occurrence of any one or more of the following Defaults, and, where a grace period for cure after notice is specified herein, the failure by Lessee to cure such Default prior to the expiration of the applicable grace period, and shall entitle Lessor to pursue the remedies set forth in Paragraphs 11.2 and/or 11.3: (a) The vacating of the Premises without the intention to reoccupy same, or the abandonment of the Premises. (b) Except as expressly otherwise provided in this Lease, the failure by Lessee to make any payment of Lessee's Base Rent and/or Lessee's Share of Common Area Operating Expenses, or any other monetary payment required to be made by Lessee hereunder, within ten (10) days after the due date. (c) A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 29 hereof that are to be observed, complied with or performed by Lessee, where such Default continues for a period of thirty (30) days after written notice hereof by or on behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's Default is such that more than thirty(30) days are reasonably required for its cure, then it shall not be deemed to be a Breach of this Lease by Lessee if Lessee commences such cure within said thirty (30) day period and thereafter diligently prosecutes such cure to completion. (d) The occurrence of any of the following events: (i) the making by Lessee of any general arrangement or assignment for the benefit of creditors; (ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code Section 101 or any successor statute (unless, in the case of a petition filed against Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within thirty (30) days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within thirty (30) days; provided, however, in the event that any provision of this Subparagraph 11.1(d) is contrary to any applicable law, such provision shall be of no force or effect, and shall not affect the validity of the remaining provisions. 11.2 REMEDIES. If Lessee fails to perform any affirmative duty or obligation of Lessee under this Lease, within ten (10) days after written notice to Lessee (or in case of an emergency, without notice), Lessor may at its option (but without obligation to do so), perform such duty or obligation on Lessee's behalf, including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals. The costs and expenses of any such performance by Lessor shall be due and payable by Lessee to Lessor upon invoice therefor. In the event of a Breach of this Lease by Lessee (as defined in Paragraph 11.1), with or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach, Lessor may: (a) Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease and the term hereof shall terminate and Lessee shall immediately surrender possession of the Premises to Lessor. In such event Lessor shall be entitled to recover from Lessee: (i) the worth at the time of the award of the unpaid rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all the detriment approximately caused by the Lessee's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the Premises,reasonable attorneys' fees, and that portion of any leasing commission paid by Lessor in connection with this Lease applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of the immediately preceding sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco or the Federal Reserve Bank District in which the Premises are located at the time of award plus one percent (1%). Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach of this Lease shall not waive, Lessor's right to recover damages under the Paragraph 13.2. If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding the unpaid rent and damages as are recoverable therein, or Lessor may reserve the right to recover all or any part thereof in a separate suit for such rent and/or damages. If a notice and grace period required under Subparagraph 8 13.l(b), (c) or (d) was not previously given, a notice to pay rent or quit, or to perform or quit, as the case may be, given to Lessee under any statute authorizing the forfeiture of leases for unlawful detainer shar also constitute the applicable notice for grace period purposes required by Subparagraph 13.l(b), (c) or (d). In such case, the applicable grace period under the unlawful detainer statue shall run concurrently after the one such statutory notice, and the failure of Lessee to cure the Default within the greater of the two (2) such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute. (b) Continue the Lease and Lessee's right to possession in effect after Lessee's Breach and recover the rent as it becomes due, provided Lessee has the right to sublet or assign, subject only to reasonable prorations. Lessor and Lessee agree that the prorations on assignment and subletting in the Lease are reasonable. Acts of maintenance or preservation, efforts to relet the Premises, or the appo of a receiver to protect the Lessor's interest under this Leme, shall not constitute a termination of the Lessee's right to possession. (c) Pursue any other remedy now or hereafer available to Lessor under the laws or judicial decisions of the state wherein the Premises are located. (d) The expiration or on of this Lease and/or the termination of Lessee's right to possession shallnot relieve Lessee from liabilty under any indemnity provisions of this Lease as to matters occurring or accruing during the temm hereof or by reason of Lessee's occupancy of the Premises. 11.3 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph 11.3, a reasonable time shall in no event be less than thirty(30) days after receipt by Lessor, and by any Lender(s) whose name and address shau have been fitmished to Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed; provided, however, that if thenature of Lessor's obligation is such that more than thirty (30) days after such notice, are reasonably required for its performance, then Lessor shall not be in breach of this Lease if performance is commenced within such thirty (30) day period and thereafter diligently pursued to completion. 12. CONDEMNATION. If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (all of which are herein called "condemnation'), this Lease shall terminate as to the part so taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than ten percent (10%) of the floor area of the Premises, or more than twenty-five percent (25 %) of the portion of the Commmon Areas designated for Lessee's parking, is taken by condemnation, Lessee may, at Lessee's option, to be exercised in writing within ten(10) days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority shau have taken possession) terminate this Lease as of the date the condemning authority takes such possession. Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in fuU force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in same proportion as therentable floor area of the Premises taken bears to,the total rentable floor area of the Premises. No reduction of Base Rent shall if the condemnation does not apply to any portion of thePremises. Any award or taking of all or any part of the Premises under the power of eminent domin or any payment made under threat of the exercise of such power shall be the property of Lessor, whether such award shall be made as compensation for diminution of value of the leasehold or for the taking of the fee, or as severance damages; provided, however, that Lessee shall be entitled to any compensation, separately awarded to Lessee for Lessee's relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease is not terminated by reason of such condemnation, Lessor shall to the extent of its net severance damages received over and above Lessee's Share of the legal and other expenses incurred by Lessor in the condemnation matter, repair any damage to Premises caused by such condemnation authority. Lessee shall be responsible for the payment of any amount in excess of such net severance damages required to complete such repair. 13. SEVERABILITY. The invalidity of any provision o this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision herof. 14. INTEREST ON PAST DUE OBLIGATIONS. Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor within ten (10) days following the date on which it was due, shall bear interest from the date due at the prime rate charged by the largest state chartered bank in the state in which the Premises are located plus two percent (2%) per annum, but not exceeding the maximum rate allowed by law. 15. TIME OF ESSENCE. Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease. 16. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms of this Lease are deemed to be rent. 9 17. NO PRIOR OR OTHER AGREEMENTS. This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. 18. NOTICES. 18.1 NOTICE REQUIREMENTS. All notices required or permitted by this Lease shall be in writing and may be delivered in person (by and or by messenger or courier service) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission during normal business hours, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 18. The addresses noted adjacent to a Party's signature on this Lease shall be that Party's address for delivery or mailing of notice purposes. Either Party may by written notice to the other specify a different address for notice purposes, except that upon Lessee's possession of the Premises, the Premises shall constitute Lessee's address for the purpose of Mailing or delivering notices to Lessee. A copy of all notices required or to be given to Lessor hereunder shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate by written notice to Lessee. 18.2 DATE OF NOTICE. Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. If sent by regular mail, the notice shall be deemed given three (3) days after the same is addressed as required herein and mailed with postage prepaid. Notices delivered by United States Express Mail or overnight courier that guarantees next day delivery shall be deemed given twenty-four (24) hours after delivery of the same to the United States Postal Service or Courier. If any notice is transmitted by facsimile transmission or similar means, the same shall be deemed served or delivered upon telephone or facsimile confirmation of receipt of the transmission thereof, provided a copy is also delivered via delivery or mail. If notice is received on a Saturday or a Sunday or a legal holiday, it shall be deemed received on the next business day. 19. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee of the same or any other term,covenantor condition hereof. Lessor's consent to, or approval of, any such act shall not be deemed to render unnecessary the obtaining of Lessor's consent to, or approval of, any subsequent or similar act by Lessee, or be construed as the basis of estoppel to enforce the provision of this Lease such consent. Regardless of Lessor's knowledge of a Default or Breach at the time of accepting rent, the acceptance of rent by Lessor shall not be a waiver of any Default or Breach by Lessee of any provision hereof. Any payment given Lessor may be accepted by Lessor on account of moneys or damages due Lessor, notwithstanding anything statements or conditions made by Lessee in connection therewith, such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment. 20. RECORDING. Either Lessor or Lessee shall, upon request of the other, execute, acknowledge and deliver to the other a short form memorandum of Lease for recording purposes. The Party requesting recordation shall be responsible for payment of any fees or taxes applicable thereto. 21. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. 22. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions. 23. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the Parties, their personal representative, successors and assigns and be governed by the laws of the State in which the Premises are located. Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located. 24. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE. 24.1 SUBORDINATION. This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, "Security Device"), now or hereafter placed by Lessor upon the real property of which the Premises are a part, to any and all advances made on the security thereof, and to all renewals, modifications, consolidations, replacements and extensions thereof. Lessee agrees that the Lenders holding any such Security Device shall have no duty, liability or obligation to perform any of the obligations of Lessor under this Lease, but that in the event of Lessor's default with respect to any such obligation, Lessee will give any Lender whose name and address have been furnished Lessee in writing for such purpose notice of Lessor's default pursuant to paragraph 11.3. If any Lender shall elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device and shall give written notice thereof to Lessee, this Lease and/or any such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof. 10 24.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph 24.3. Lessee agrees to attorn to a Lender or any other party who acquires ownership to the Premises by reason of a foreclosure of a Security Device, and that in the event of such foreclosure, such new owner shall not: (i) be liable for any act or omission of any prior lessor or with respect to events occurring prior to acquisition of ownership, (ii) be subject to any offsets or defenses which Lessee might have against any prior lessor, or (iii) be bound by prepayment of more than one month's rent. 24.3 NON-DISTURBANCE. With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee's subordination of this Lease shall be subject to receiving assurance (a "non-disturbance agreement") from the Lender that Lessee's possession and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises. 24.4 SELF-EXECUTING. The agreements contained in this Paragraph 24 shall be effective without the execution of any further documents; provided, however, that upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any such subordination or non-subordination, attormment and/or non-disturbance agreement as is provided for herein. 25. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding to enforce the terms hereof or declare rights hereunder,the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys' fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term "Prevailing Party" shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense. The attorneys' fee award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys' fees reasonably incurred. Lessor shall be entitled to attorneys' fees, costs and expenses incurred in preparation and service of notices of Default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach. Broker(s) shall be intended third party beneficiaries of this Paragraph 25. 26. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times for the purpose of showing the same to prospective purchasers, lenders, or lessees, and such alterations, repairs, improvements or additions to the Premises or to the Building, as Lessor may reasonably deem necessary. Lessor may at any time place on, about the Premises or Building any ordinary "For Sale" signs and Lessor may at any time during the last one hundred eighty (180) days of the term hereof place on or about the Premises any ordinary "For Lease" signs. All such activities of Lessor shall be without abatement of rent or liability to Lessee. 27. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and the performance of all of the covenants, conditions and provisions on Lessee's part to be observed and performed under this Lease, Lessee shall have quiet possession of the Premises for the entire term hereof subject to all of the provisions of this Lease. 28. OPTIONS. 28.1 OPTIONS. Lessee shall have the Options to extend the term of this lease for two (2) additional three (3) year terms, at a Base Rent determined by the Parties to be at market at the time of each extension. 28.2 DEFINITION. As used in this Lease, the word "Option" are the rights to extend the term of this Lease or to renew this Lease for additional terms beyond the Original Term. 28.3 MULTIPLE OPTIONS. In the event Lessee has any multiple Options to extend or renew this Lease, a later option cannot be, exercised unless the prior Options to extend or renew this Lease have been validly exercised. 28.4 EFFECT OF DEFAULT ON OPTIONS. Lessee shall have no right to exercise an Option, notwithstanding any provision in the grant of Option to the contrary: (i) during the period commencing with the giving of any notice of Default under Paragraph 11.1 and continuing until the notice of default is cured, or (ii) during the period of time any monetary obligation due Lessor from Lessee is unpaid (without regard to whether notice thereof is given Lessee). 29. RULES AND REGULATIONS. Lessee agrees that it will abide by, and keep and observe all reasonable rules and regulations ("Rules and Regulations") which Lessor may make from time to time for the management, safety, care, and cleanliness of the grounds, the parking and unloading of vehicles and the preservation of good order, as well as for the convenience of other occupants or tenants of the Building and the Leased Premises and their invitees. 11 30. AUTHORITY. If either Party hereto is a corporation, trust, or general or limited partnership, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf. If Lessee is a corporation, trust or partnership, Lessee shall, within thirty (30) days after request by Lessor, deliver to Lessor evidence satisfactory to Lessor of such authority. 31. CONFLICT. Any conflict between the printed Provisions of this Lease and the typewritten or handwritten'provisions shall be controlled by the typewritten or handwritten provisions. 32. AMENDMENTS. This Lease may be modified only in writing, signed by the parties in interest at the time of the modification. Parties shall amend this Lease from time to time to reflect any adjustments that are made to the Base Rent or other rent payable under this Lease. As long as they do not materially change Lessee's obligations hereunder, Lessee agrees to make such reasonable non-monetary modifications to this Lease as may be reasonably required by an institutional Insurance company or pension plan Lender in connection with the obtaining of normal financing or refinancing of the property of which the Premises are a part. 33. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more than one person or entity is named herein as either Lessor or Lessee, the obligations of such multiple parties shall be the joint and several responsibility of all persons or entities named herein as such Lessor or Lessee. 34. ADDITIONAL OFFICE IMPROVEMENTS. As an inducement to Lessor to lease to Lessee the Office Space for three (3) years for no Base,Rent,Lessee is depositing in escrow, concurrently with the execution of the Lease, Eighty Thousand and N0/100 Dollars ($80,000.00),to be expended by Lessee for the construction of additional office space in a portion of the remaining warehouse, space of the Leased Premises for another lessee. Lessee will issue for the construction the additional office space pursuant to plans and specifications approved by the other lessee and Lessor and will pay up to $80,000 in costs for such construction. In the event Lessee does not incur the total $80,000 construction of this additional office space, the balance will be paid over to Lessor and shall be deemed payment of Base Rent on the Office Space for the Original Term. In the event Lessee is required to expend more than $80,000 for the additional office space, such additional expenditures will be deemed Base Rent on the office Space and the Original Term will be extended for the period of terms permitted by additional Base Rent at $6.00 per square foot per year. 35. DIESEL GENERATOR. Big O Development, Inc. shall have the right to continue to operate the diesel generator located on the east side of the building at Big O Development Inc.'s sole cost and expense for the term of this lease and any options that are exercised. LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH AND EVERY TERM AND PROVISION CONTAINED HEREIN,AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCLALLY RFASONABLY AND EFFECTUATE, THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES. The parties hereto have executed this Lease at the place and on the dates specified above thier respective signatures. Executed at: 400 North 700 West North Salt Lake City, Utah 84054 on: December 7, 1994 By: LESSOR: BOTAC VI LEASING, L.L.C. /s/ R. JOHN WALKER By: ________________________________ Print Name: R. John Walker, Title: Member of L.L.C. /s/ BRENT C. BEUTLER By: ________________________________ Print Name: BRENT C. BEUTLER Title: Member of L.L.C. Address: 400 North 700 West North Salt Lake City, Utah 84054 Telephone: 801 292-1466 Facsimile: 801 298-4967 Executed at: 11755 East Peakview Avenue Englewood, Colorado 80111 on: December 6, 1994 By: LESSOR: BIG O DEVELOPMENT, INC. /s/ JOHN B. ADAMS By: __________________________ John B. Adams Vice President Address: 11755 East Peakview Avenue Englewood, Colorado 80111 Telephone: (303) 790-2800 Facsimile: (303) 790-0225 12 EXHIBIT A [Rendition of Corporate offices space appears here] [Site Plan Sketch.] 13 EX-10.63 4 ASSIGNMENT & ASSUMPTION EXHIBIT 10.63 Recording Requested By and When Recorded Mail to: GORSUCH KIRGIS, L.L.C. 1401 Seventeenth Street, #1100 P.O. Box 17180 Denver, Co 80217 Attn: Connie B. Hyde ASSIGNMENT AND ASSUMPTION AGREEMENT ----------------------------------- THIS ASSIGNMENT AND ASSUMPTION AGREEMENT ("Agreement") is entered into as of this 2nd day of December, 1994 by BIG 0 DEVELOPMENT, INC., a Colorado corporation ("Development"), BIG 0 TIRES, INC., a Nevada corporation ("CoMaker") (Development and CoMaker collectively called "Assignor") and BOTAC VI LEASING, L.L.C., a Utah limited liability company ("Assignee"), and ALLSTATE LIFE INSURANCE COMPANY, an Illinois insurance corporation ("Lender"), with reference to the following facts. RECITALS Whereas, Assignor and Lender entered into a loan in the original principal amount of $2,860,000.00 ("Loan") evidenced by that certain Deed of Trust Note dated January 18, 1990, made by Assignor in favor of Lender, in the amount of the Loan ("Note"); and Whereas, the Note is secured by: (I) Deed of Trust, Assignment of Leases, Rents and Contracts, Security Agreement and Fixture Filing, dated January 18, 1990, from Development to the Public Trustee of the County of Arapahoe, as trustee, for the benefit of Lender, recorded in the records of the Clerk and Recorder of Arapahoe County, Colorado ("Official Records") on January 18, 1990, in Book 5855, at Page 76, as Reception No. 9000005741 ("Deed of Trust',); (ii) Assignment of Leases, Rents, Profits and Contracts, dated January 18, 1990 from Development to Lender, recorded in the Official Records on January 18, 1990, in Book 5855, at Page 123, as Reception No. 9000005742 ("Assignment,,); (iii) UCC-1 Financing Statements recorded in the UCC Records of the Official Records on January 18, 1990, as file number C320563 and with the Colorado Secretary of State on January 24, 1990 as file number 902006607 (collectively, "Financing Statements,,); and (iv) any other assignments, agreements and documents executed by Assignor in connection with the Loan defined in the Deed of Trust as ("Related Agreements"); the foregoing security instruments shall be collectively referred to as the "Loan Documents"; and Whereas, the Deed of Trust encumbers certain real property lying and situated in Arapahoe County, Colorado, and more particularly described in Exhibit A attached hereto and incorporated herein by reference ("Property") ; and Whereas, Assignor and Assignee have entered into an agreement whereby Development shall transfer to Assignee all of Development's right, title and interest in and to the Property, the improvements and fixtures located thereon, the leases relating to the Property and all personal property encumbered by the Financing Statements; and Whereas, Assignor and Assignee have requested Lender's consent to the sale and transfer of the Property, the improvements and fixtures located thereon, the leases and the personal property and to the assumption by Assignee of Assignor's obligations under the Note and Loan Documents and Lender is willing to consent to said transfer of title and assumption of said indebtedness in accordance with the terms and conditions of this Agreement; and Whereas, Assignor and Assignee acknowledge that the execution of this Agreement shall confer a real and substantial benefit upon each of them. NOW, THEREFORE, in consideration of the foregoing facts and the covenants contained herein and other consideration, the receipt and sufficiency of which is hereby acknowledged, Assignor and Assignee hereby agree as follows: 1.Recitals. The foregoing recitals are true and correct and incorporated by reference herein. Unless otherwise defined herein, capitalized terms shall have the meaning and definition set forth in the Note and the Loan Documents. 2 . Assumption of the Loan. Assignee unconditionally assumes all the duties, obligations and liabilities of Assignor under the Note and the Loan Documents. In connection therewith, without limiting the generality of the foregoing, Assignee agrees to pay the Note at the time, in the manner and in all other respects as therein provided, to perform all of the duties, covenants and obligations provided in the Note and the Loan Documents to be performed by Assignor thereunder at the time, in the manner, and in all other respects as therein provided, and to be bound by all the terms and to the same extent as originally made, executed and delivered to Lender by Assignee. Accordingly, the Note and Loan Documents shall include Assignee as an obligee thereunder, including without limitation, the inclusion of Assignee (i) as "Maker" under the Note, and (ii) as "Grantor" under the Deed of Trust, and (iii) "Assignor" under the Assignment. 2 3.Release of Assignor. Lender hereby releases Assignor from liability under the Note, the Loan Documents and the Related Agreements (as defined in the Deed of Trust) for matters occurring after the effective date of this Agreement. Notwithstanding the foregoing, (a) neither Assignor, nor the other indemnitors under the Environmental Indemnity Agreement shall be released of their liabilities under the Environmental Indemnity Agreement by this agreement; (b) Assignor agrees that its liability to Lender for acts or omissions arising out of its duties and obligations under the Note, the Loan Documents and the Related Agreements shall not be impaired, prejudiced or affected in any way whatsoever for matters arising or occurring prior to the effective date of this Agreement, whether known or unknown at this time; and (C) Assignor's liability under the Guarantee Agreement (hereinafter defined) shall be a continuing obligation of Assignor and shall not be impaired by foregoing release. 4.Acknowledgment of Debt. Assignor and Assignee acknowledge by their execution hereof that the indebtedness evidenced by the Note is unconditionally due and owing to Lender as provided in the Note and that as of the date hereof Assignor and Assignee have no actions, defenses, demands and/or claims of set- off or deduction whatsoever, against: (i) Lender; (ii) the indebtedness evidenced by the Note; or (iii) the Loan Documents. Furthermore, Assignor and Assignee acknowledge that, as of the date hereof, Lender has in no way defaulted or performed any act or omission under the Note or the Loan Documents or any other agreements between or among Assignor, Assignee and Lender, which would or could give rise to any action(s), cause(s) of action, suits, debts, sums of money damages, claims, costs, expenses and/or demands whatsoever, in law or in equity or otherwise, by Assignor or Assignee against Lender. 5. Ratification of Prior Acts. Except as herein specifically modified hereby, the terms, covenants and conditions of the Note and the Loan Documents shall remain in full force and effect without any further modifications. 6.Termination of Side Letter Agreement. Lender, Assignor and Assignee agree that all provisions set forth in that certain Agreement Regarding Rights to Transfer Property dated January 18, 1990, between Development and Lender granting Assignor a one-time right to transfer the Property and additional rights personal to Development set forth in that certain Agreement Regarding Waiver of Escrows dated January 18, 1990, between Development and Lender waiving tax and insurance deposits (collectively called-the "Side Letter Agreement") are hereby terminated and of no further force or effect as of the date hereof. 7. No Waiver of Future Consent. This consent to transfer shall not be a waiver of the right of Lender to require 3 such consent to future or successive transfers, Lender reserving all such rights in the Note and the Loan Documents. 8.Further Documentation. Assignee agrees to execute, contemporaneously herewith, in favor of Lender, an Environmental Indemnity Agreement in form and content acceptable to Lender ("Assignee's Environmental Indemnity"), as well as any and all other documents reasonably required by Lender to retain its perfected security interest in the Property. Assignee hereby covenants that it will, at any time, upon written request therefore, execute and deliver to Lender any new or confirmatory instruments which Lender may request in order to evidence Assignee's assumption of the Note and the Loan Documents. Assignor agrees to execute, contemporaneously herewith, and deliver to Lender, a Guarantee Agreement, guaranteeing payment of the Note, in form and content acceptable to Lender (the "Guarantee Agreement"). 9.Costs. Assignor and Assignee shall pay all costs of the assignment and assumption made pursuant hereto, including without limitation, attorneys, fees and costs, recording fees, Lender's administrative fees and the cost of an endorsement to Lender's mortgagee's title policy. In the event it is determined that additional costs relating to this transaction are due, Assignor and Assignee agree to pay such costs immediately upon demand. Furthermore, in the event that Lender resorts to litigation to enforce this Agreement, all costs of such trials, appeals and proceedings, including, without limitation any proceedings pursuant to the bankruptcy laws of the United States, shall be paid by Assignor and Assignee. The liability of Assignor and Assignee shall be joint and several with respect to this provision. 10.Consent of Any Subordinate Lienholder. Assignor and Assignee hereby represent to Lender: (I) that the lien of the Deed of Trust held by Lender is a valid, first and subsisting lien on the Property; (ii) that as of the date hereof there is no subordinate lien or encumbrance now outstanding against the Property which has not been approved by Lender in writing. 11.Notices. Section 4.16 of the Deed of Trust is hereby deleted in its entirety and the following IS substituted therefor: A. All notices expressly provided hereunder to be given by Beneficiary to Grantor and all notices, demands and other communications of any kind or nature whatever which Grantor may be required or may desire to give to or serve on Beneficiary shall be in writing and shall be (1) hand-delivered, effective upon receipt, (2) sent by United States Express Mail or by private 4 overnight courier, effective upon receipt, or (3) served by certified mail, to the appropriate address set forth below, or at such other place as the Grantor, Beneficiary or Trustee, as the case may be, may from time to time designate in writing by ten (10) days prior written notice thereof. Any such notice or demand served by certified mail, return receipt requested, shall be deposited in the United States mail, with postage thereon fully prepaid and addressed to the party so to be served at its address above stated or at such other address of which said party shall have theretofore notified in writing, as provided above, the party giving such notice. Service of any such notice or demand so made shall be deemed effective on the day of actual delivery as shown by the addressee's return receipt or the expiration of three (3) business days after the date of mailing, whichever is the earlier in time. Any notice required to be given by Beneficiary shall be equally effective if given by Beneficiary's agent, if any. B. Grantor hereby requests that any notice, demand, request or other communication (including any notice of an Event of Default and notice of sale as may be required by law) desired to be given or required pursuant to the terms hereof be addressed to Grantor as follows: Botac VI Leasing, L.L.C. 400 North 700 West Post Office Box S40230 North Salt Lake, UT 84054 All notices and other communications to Beneficiary shall be addressed as follows: Allstate Life Insurance Company Allstate Plaza West M2C 3100 Sanders Road Northbrook, IL 60062 Attention: Commercial Mortgage Loan Servicing Manager 5 With a copy to: Allstate Insurance Company Financial Law Division Allstate Plaza West M2A 3100 Sanders Road Northbrook, IL 60062 The Note and the Loan Documents are hereby modified such that the foregoing address shall be deemed to be the address for all notices required to be given to Borrower pursuant to the Note and the Loan Documents. 12.Severability. If any one or more of the provisions of this Agreement shall be held invalid or unenforceable, the validity and enforceability of all other provisions of this Agreement shall not be affected. 13. Binding Effect. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their heirs, personal representatives, successors and assigns. 14.Captions. The captions and headings in this Agreement are for convenience only and are not to be used to interpret, define or limit the provisions hereof. 15.Multiple Counterparts. This agreement may be executed in multiple counterparts each of which shall be an original part, but all of which shall constitute one instrument. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date hereinabove set forth. "Assignor" BIG O DEVELOPMENT, INC., a Colorado corporation ATTEST: By: /s/ Susan D. Hendee By: /s/ John B. Adams ----------------------- ----------------------- Its: Asst. Secretary Its: V. P. ---------------------- ---------------------- 6 BIG O TIRES, INC., a Nevada corporation ATTEST: By: /s/ Susan D. Hendee By: /s/ John B. Adams ---------------------------- ---------------------------- Its: Asst. Secretary Its: Ex. V.P. --------------------------- --------------------------- "Assignee" BOTAC VI LEASING, L.L.C., a Utah limited liability company By: /s/ Hal Morrell ---------------------------- Its: Manager --------------------------- "Lender" ALLSTATE LIFE INSURANCE COMPANY, an Illinois Insurance Corporation By: /s/ Richard Student ---------------------------- By: /s/ William F. Wein, Jr. ---------------------------- Its Authorized Signatories 7 STATE OF COLORADO) ) ss. COUNTY OF DENVER ) The foregoing instrument was acknowledged before me this., 6th day of December, 1994, by John B. Adams and Susan D. Hendee, Vice President and Assistant Secretary of Big 0 Development, Inc., a Colorado corporation. Witness my hand and seal. My commission expires: 1/26/98 -------------------------------------. [SEAL APPEARS HERE] /s/ Cindy L. Schutz ------------------------------------- Notary Public STATE OF COLORADO) ) ss. COUNTY OF DENVER ) The foregoing instrument was acknowledged before me this, 6th day of December, 1994, by John B. Adams and Susan D. Hendee, Vice President and Assistant Secretary of Big 0 Tires, Inc., a Nevada corporation. Witness my hand and seal. My commission expires: 1/26/98 -------------------------------------. [SEAL APPEARS HERE] /s/ Cindy L. Schutz ------------------------------------- Notary Public STATE OF COLORADO) ) ss. COUNTY OF DENVER ) The foregoing instrument was acknowledged before me this, 6th day of December, 1994, by John B. Adams and Susan D. Hendee, Vice President and Assistant Secretary of Big 0 Tires, Inc., a Nevada corporation. Witness my hand and seal. My commission expires: 1/26/98 -------------------------------------. [SEAL APPEARS HERE] /s/ Cindy L. Schutz ------------------------------------- Notary Public 8 STATE OF COLORADO) ) ss. COUNTY OF DENVER ) The foregoing instrument was acknowledged before me this, 5th day of December, 1994, by Hal Morrell, as Manager/Member of Botac VI Leasing, L.L.C., a Utah limited liability company. Witness my hand and seal. My commission expires: 3/17/98 -----------------------------------. [SEAL APPEARS HERE] /s/ Miriam E. Ellsworth ----------------------------------- Notary Public STATE OF ILLINOIS) ) ss. COUNTY OF COOK ) The foregoing instrument was acknowledged before me this, 12th day of December, 1994, by Richard Student and William F. Wein, Jr., as authorized signatories of Allstate Life Insurance Company, an Illinois corporation. Witness my hand and seal. My commission expires: 1/5/97 -----------------------------------. [SEAL APPEARS HERE] /s/ Janice Gregory ----------------------------------- Notary Public 9 EXHIBIT A LEGAL DESCRIPTION Lot 5, Lincoln Executive Center, an Administrative Replat of Lot 5 of Filing No. 1, County of Arapahoe, State of Colorado. Together with the Ingress and Egress Rights as contained in Declaration of Easement recorded October 21, 1987 in Book 5292 at Page 75, Arapahoe County Records. Street Address: 11755 East Peakview Avenue Englewood, Colorado 80111 10 EX-10.64 5 GUARANTEE AGREEMENT EXHIBIT 10.64 GUARANTEE AGREEMENT ------------------- THIS GUARANTEE AGREEMENT ("Guarantee") is given as of the 2nd day of December, 1994, by BIG O TIRES, INC., a Nevada corporation ("Big O"), whose address is 11755 East Peakview Avenue, Englewood, Colorado 80111, and BIG O DEVELOPMENT, INC., a Colorado corporation ("Development") whose address is 11755 East Peakview Avenue, Englewood, Colorado 80111 (collectively called "Guarantors"), to ALLSTATE LIFE INSURANCE COMPANY, whose address is Allstate Plaza West M2C, 3100 Sanders Road, Northbrook, Illinois 60062 ("Lender") based on the following facts: A. Guarantors and Lender entered into a loan in the original principal amount of $2,860,000.00 ("Loan") to the Guarantors as evidenced by a Deed of Trust Note dated January 18, 1990, payable to Lender in the principal amount of $2,860,000.00 ("Note"). B. The Note is secured by: (i) Deed of Trust, Assignment of Leases, Rents and Contracts, Security Agreement and Fixture Filing, dated January 18, 1990, from Development to the Public Trustee of the County of Arapahoe, as trustee, for the benefit of Lender, recorded in the records of the Clerk and Recorder of Arapahoe County, Colorado ("Official Records") on January 18, 1990, in Book 5855, at Page 76, as Reception No. 9000005741 ("Deed of Trust"); (ii) Assignment of Leases, Rents, Profits and Contracts, dated January 18, 1990 from Development to Lender, recorded in the Official Records on January 18, 1990, in Book 5855, at Page 123, as Reception No. 9000005742 ("Assignment"); (iii) UCC-1 Financing Statements recorded in the UCC Records of the Official Records on January 18, 1990, as file number C320563 and with the Colorado Secretary of State on January 24, 1990 as file number 902006607 (collectively, "Financing Statements"); and (iv) any other assignments, agreements and documents executed by Assignor in connection with the Loan defined in the Deed of Trust as ("Related Agreements"); the foregoing security instruments shall be collectively referred to as the "Loan Documents". C. The Deed of Trust encumbers certain real property lying and situated in Arapahoe County, Colorado, and more particularly described in Exhibit A attached hereto and incorporated herein by reference ("Property"). D. Guarantors have entered into an agreement whereby Development shall sell and transfer the Property to BOTAC VI LEASING, L.L.C., a Utah limited liability company ("Botac"). E. Guarantors and Botac have requested Lender' s consent to the sale and transfer of the Property, to the assumption by Botac of Guarantors, obligations under the Note and Loan Documents, and to the release of Guarantors' obligations for payment of the Note as co-makers thereof. Lender is unwilling to consent to the transfer of the Property, the assumption of the Note and Loan Documents, and the release of Guarantors' obligations under the Note, unless the obligations are unconditionally, independently, and directly guaranteed by Guarantors. Botac, Guarantors and Lender are concurrently herewith executing an Assignment and Assumption Agreement (the "Assumption Agreement") which sets forth more fully the terms and conditions of Lender's consent. The contemporaneous execution and delivery of this Guarantee is required by the Assumption Agreement. AGREEMENT --------- NOW, THEREFORE, in consideration of the matters recited above, and to induce Lender to accept the assumption of the Note and Loan Documents by Botac, Guarantors hereby jointly and severally undertake and agree as follows: 1. This is a guarantee of payment and not of collection. Guarantors hereby guarantee unconditionally the prompt, punctual, and timely payment of any and all obligations, as hereinafter defined, of Botac to Lender. Botac IS obligated to Lender for the payment and performance of all duties and obligations of Botac under the terms of the Note and Loan Documents. The amounts payable and obligations to be performed pursuant to the terms of the Note, the Loan Documents, or any other instrument now in existence or hereafter executed, the purpose of which is to secure the obligations of the Note, are hereinafter called the "Obligations." Notwithstanding any provision hereof to the contrary, Lender shall not bring any action against Guarantors in federal or state court seeking to collect the obligations from Guarantors until such time as Lender has provided notice to Guarantors of the existence of a default of the Obligations, and (if the stated default can be cured by the payment of a sum of money) a period of ten (10) days has elapsed subsequent to the giving of notice but the default remains uncured, or (if the stated default cannot be cured by the payment of a sum of money) a period of thirty (30) days has elapsed subsequent to the giving of notice but the default remains uncured. Any notice provided to Guarantors shall be delivered to the addresses and otherwise in accordance with the notice provisions contained in the Assumption Agreement. 2. The Guarantors hereby waive and agree not to assert or take advantage of (a) any right to require Lender to proceed against Botac or any other person or to proceed against or exhaust any security held by it at any time or to pursue any other remedy in its power before proceeding against the Guarantors; (b) the defense of the statute of limitations in any action hereunder or for the collection of the Obligations; (c) any defense that may arise by reason of the incapacity, lack of authority, death or disability of, or revocation hereof, by the Guarantors or others, or the failure of Lender to file or enforce a claim against the estate (either in administration, bankruptcy, or any other proceeding) of the Guarantors or others; (d) demand, protest and -2- notice of any other kind, including, without limiting the generality of the foregoing, notice of the existence, creation or incurring of any new or additional indebtedness or obligation or of any action or non-action on the part of Botac, Lender, the Guarantors under this or any other instrument, or creditor of Botac, or any other person whomsoever, in connection with any obligations hereby guaranteed; (e) any defense based upon an election of remedies by Lender, including, without limitation, an election to proceed by non-judicial rather than judicial foreclosure, which destroys or otherwise impairs the subrogation rights of the Guarantors or the right of the Guarantors to proceed against Botac for reimbursement, or both; and (f) any duty on the part of Lender to disclose to the Guarantors any facts it may now or hereafter know about Botac, regardless of whether Lender has reason to believe that any such facts materially increase the risk beyond which the Guarantors are obligated or whether Lender has a reasonable opportunity to communicate such facts to the Guarantors, it being understood and agreed that the Guarantors are fully responsible for being and keeping informed of the financial condition of Botac and of all circumstances bearing on the risk of non-payment of any obligations hereby guaranteed. 3. The obligations of Guarantors hereunder are independent of the obligations of Botac and each of the Guarantor's obligations are independent of the obligations each of the other Guarantors who have executed and delivered this or similar guarantees. Release of one or more Guarantors shall not impair or diminish the liability of any remaining Guarantors, except to the extent of monies actually received by Lender from the released Guarantor as a consequence of such release. In the event of any default hereunder, a separate action or actions may be brought and prosecuted against the Guarantor, or any Guarantors, whether or not Botac is joined therein or a separate action or actions are brought against Botac. Lender may maintain successive actions for other defaults. The Lender's rights hereunder shall not be exhausted by its exercise of any of its rights or remedies or by any such action or by any number of successive actions until and unless the Obligations have been paid and fully performed. 4. The Guarantors authorize Lender, without notice to Guarantors and without impairing the liability of the Guarantors hereunder, from time to time to renew, extend, accelerate, modify, or otherwise change the times for or terms of payment for the obligations or any portion thereof, including but not limited to any increase or decrease in the rates of interest provided in the Note, to make other amendments, changes or modifications to the Loan Documents, to waive any other terms, covenants, or conditions thereof, to compromise or settle any amount or claim due or owing or claimed to be due or owing under the Loan Documents, or to surrender, release, or subordinate all or any portion of the Property defined in the Deed of Trust or other security under the Deed of Trust or accept additional or substitute security therefor. -3- The provisions of this Guaranty shall extend and be applicable to all such renewals, extensions and modifications. 5. The Guarantors agree to pay to Lender, without demand, reasonable attorneys' fees and all costs and other expenses which it expends or incurs in collecting or compromising the obligations or in enforcing this Guarantee against the Guarantors whether or not suit is filed. 6. Should any one or more provisions of this Guarantee be determined to be illegal or unenforceable, all other provisions nevertheless shall be effective. 7. This Guarantee shall inure to the benefit of Lender, its successors and assigns, including the assignees of any indebtedness hereby guaranteed, and bind the heirs, executors, administrators, successors and assigns of the Guarantors. This Guarantee is assignable by Lender with respect to all or any portion of the Obligations, and when so assigned, the Guarantors shall be liable to the assignees under this Guarantee without in any manner affecting the liability of the Guarantors hereunder with respect to any Obligations retained by Lender. 8. The Guarantors hereby postpone and subordinate to the claims of Lender against Botac and the other Guarantors any indebtedness or other claim which the subject Guarantor may have against Botac and the other Guarantors. The Guarantors shall have no right of subrogation and waives any right to enforce any remedy which Lender now has or may hereafter have against Botac and the other Guarantors, and waives any benefit of, and any right to participate in, any security now or hereafter held by Lender. 9. If more than one Guarantor signs this Guarantee, the obligation of all Guarantors shall be joint and several. When the context and construction so requires, all words used in the singular herein shall be deemed to have been used in the plural and the masculine shall include the feminine and neuter. The word "person" as used herein shall include any individual, company, firm, association, partnership, corporation trust or other legal entity of any kind whatsoever. 10. No provision of this Guarantee or right of Lender hereunder can be waived nor can the Guarantors be released from the obligations hereunder except in writing, duly executed and authorized by an officer of Lender. 11. This Guarantee shall be governed by and construed in accordance with the laws of Colorado. This Guarantee shall constitute the entire agreement of the Guarantors with Lender with respect to the subject matter hereof and no representation, understanding, promise or condition concerning the subject matter hereof shall be binding upon Lender unless expressed herein. -4- Executed as of December 2, 1994. BIG O TIRES, INC., a Nevada Corporation By: /s/John B. Adams ------------------------------ Its: Ex. V.P. -------------------------- BIG O DEVELOPMENT, INC., a Colorado Corporation By: /s/ John B. Adams ------------------------------ Its: V.P. -------------------------- -5- STATE OF COLORADO ) ) ss. COUNTY OF DENVER ) The foregoing instrument was acknowledged before me this 6th day of December, 1994 by John B. Adams, as Vice President of Big 0 Tires, Inc., a Nevada corporation. Witness my hand and official seal. My commission expires: 1/26/98 --------------------------. [SEAL APPEARS HERE] /s/ Cindy L. Schultz -------------------------- Notary Public STATE OF COLORADO) ) ss. COUNTY OF DENVER ) The foregoing instrument was acknowledged before me this 6th day of December, 1994 by John B. Adams, as Vice President of Big 0 Development, Inc., a Colorado corporation Witness my hand and official seal. My commission expires: 1/26/98 --------------------------. [SEAL APPEARS HERE] /s/ Cindy L. Schultz -------------------------- Notary Public -6- EXHIBIT A LEGAL DESCRIPTION Lot 5, Lincoln Executive Center, an Administrative Replat of Lot 5 of Filing No. 1, County of Arapahoe, State of Colorado. Together with the Ingress and Egress Rights as contained in Declaration of Easement recorded October 21, 1987 in Book 5292 at Page 75, Arapahoe County Records. Street Address: 11755 East Peakview Avenue Englewood, Colorado 80111 -7- EX-10.65 6 CLOSING AGREEMENT EXHIBIT 10.65 CLOSING AGREEMENT ----------------- This Closing Agreement is made as of the 2nd of December, 1994, by BIG 0 DEVELOPMENT, INC., a Colorado corporation ("Development"), BIG 0 TIRES, INC., a Nevada corporation ("CoMaker") (Development and CoMaker collectively called "Assignor") and BOTAC VI LEASING, L.L.C., a Utah limited liability company ("Assignee"), and ALLSTATE LIFE INSURANCE COMPANY, an Illinois insurance corporation ("Lender"), with reference to the following facts. RECITALS A. Assignor and Lender entered into a loan in the original principal amount of $2,860,000.00 ("Loan") evidenced by that certain Deed of Trust Note dated January 18, 1990, made by Assignor in favor of Lender, in the amount of the Loan ("Note") , which Note is secured by, among other things, a Deed of Trust, Assignment of Leases, Rents and Contracts Security Agreement and Fixture Filing dated January 18, 1990 from Development to the Public Trustee of Arapahoe County, Colorado ("Deed of Trust") encumbering certain real property situated in said county ("Property") and more particularly described therein. B. Assignor and Assignee have entered into an agreement WHEREBY Development shall transfer to Assignee all of Development's right, title and interest in and to the Property, the improvements and fixtures located thereon, as well as other items relating to the Property. C. Assignor and Assignee have requested Lender's consent to the sale and transfer of the Property, the improvements and fixtures located thereon, and other items relating to the Property, and to the assumption by Assignee of Assignor's obligations under the Loan. D. Lender has agreed to consent to the said transfer of title and assumption of obligations in accordance with the terms of an Assignment and Assumption Agreement ("Assumption Agreement") among the parties, of even date herewith. E. Assignor and Assignee have not fully complied with the requirements of the Assumption Agreement and have requested Lender to grant its conditional consent to the proposed transfer and assumption subject to the terms of this Agreement. NOW THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Lender conditionally consents to the transfer of the Property and the assumption of the Loan notwithstanding the failure of Assignee and Assignor to comply fully with the terms of the Assumption Agreement, subject to the terms of this Closing Agreement. 2. No unfulfilled term or condition of the Assumption Agreement shall be waived by reason of the foregoing Lender's conditional consent, and Assignor and Assignee covenant and agree to complete the unfulfilled requirements shown on the closing checklist attached hereto ("Requirements") to the Lender's satisfaction, within ten (10) days following the date hereof. 3. To secure the performance of the foregoing covenant to complete performance of the Requirements, Assignor and Assignee shall deposit with Lender the sum of Ten Thousand and No One-Hundredths Dollars ($10,000.00) (the "Deposit") at the time of execution of this Closing Agreement by Assignor and Assignee. Lender is authorized to hold and disburse the Deposit for payment of costs and expenses incurred subsequent to the date hereof in connection with the completion of the Requirements. Such costs and expenses may include, without limitation, additional attorneys' fees and costs. 4. If the Requirements have not been fully completed to Lender's satisfaction within said ten (10) day period, Lender may, at its election, (a) withdraw its conditional consent to the transfer of the Property and the assumption of the Loan, in which event the transfer and assumption shall be deemed to have occurred without Lender's consent in violation of the terms of the Deed of Trust, or (b) disburse the Deposit (or so much thereof as may be required) to complete the Requirements to Lender's satisfaction, or (c) any combination of parts (a) and (b) above which Lender in its discretion deems appropriate. 5. If the Requirements are completed within said ten (10) day period, Lender shall return the Deposit (or so much thereof as has not then been disbursed in accordance with this Closing Agreement) to Assignor and Assignee, together with an accounting of the amounts which have been so disbursed. If the Requirements are not completed within said ten (10) day period, but are thereafter completed to Lender's satisfaction prior to the occurrence of any declaration of default under the Loan, Lender shall likewise return the balance of the Deposit to Assignor and Assignee with an accounting of amounts which have been disbursed. In all other events, Lender shall be entitled to retain the Deposit as additional security for the payment and performance of the Loan; however, the Deposit shall not be deemed to be liquidated damages for the failure to perform the Requirements and Assignor and Assignee shall remain liable for all costs of completing the Requirements in excess of the Deposit. -2- 6. This Closing Agreement shall be governed by and construed in accordance with the laws of the State of Colorado. 7. This Closing Agreement shall be binding upon and inure to the benefit of the parties hereto and their successors and assigns. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date above set forth. ASSIGNOR BIG O DEVELOPMENT, INC., a Colorado corporation ATTEST: By: /s/ Susan D. Hendee By: /s/ John B. Adams ------------------------- ------------------------------ Its: Assistant Secretary Its: Vice President ------------------------ ----------------------------- BIG O TIRES, INC., a Nevada corporation ATTEST: By: /s/ Susan D. Hendee By: /s/ John B. Adams ------------------------- ------------------------------ Its: Assistant Secretary Its: Executive Vice President ------------------------ ----------------------------- ASSIGNEE BOTAC VI LEASING, L.L.C., a Utah limited liability company By: /s/ Hal Morrell ------------------------------ Its: Member L.L.C. ----------------------------- -3- LENDER ALLSTATE LIFE INSURANCE COMPANY, an Illinois insurance corporation By: /s/ Richard Student ------------------------------ By: /s/ ------------------------------ Its Authorized Signatories -4- CLOSING DAY CHECKLIST EFFECTIVE AS OF DECEMBER 2, 1994 LENDER: Allstate Life Insurance Company ORIGINAL BORROWER: Big 0 Development, Inc. ("Development") Big 0 Tires, Inc. ("Big O") NEW BORROWER: Botac VI Leasing, L.L.C., a Utah limited liability company LOAN NO. 103006 LOAN DOCUMENTS 1. Assignment and Assumption Agreement executed by: Big 0, Development, Botac and Allstate 2. UCC Financing Statement - executed by Botac 3. Restated Closing Certificate of Big 0 4. Restated Closing Certificate of Development 5. Certificate of Representations and Warranties of Botac 6. Environmental Indemnity executed by Botac and Bailey's Moving and Storage 7. Side letter agreement waiving tax and insurance escrows (Botac and Allstate) 8. Guarantee Agreement executed by Big 0 and Development 9. Letter Agreement regarding closing and escrow of funds in the amount of $10,000.00 for any costs and fees incurred by Allstate - to be refunded after balance of checklist items are submitted within 10 days after closing. CHECKLIST ITEMS 10. Leases: A. Lease as of closing date between Botac and Development B. Lease between Botac and Development commencing April 1, 1994 C. Lease to be entered into with Bailey's Moving and Storage for a minimum of 10 years -5- 11. Certified Rent Roll - indicate the lease term, monthly payment and commencement date for the following leases: A. Existing lease as of closing date between Botac and Development B. Lease between Botac and Development commencing April 1, 1994 C. Lease to be entered into with Bailey's Moving and Storage 12. Insurance (must adhere to Allstate's current standard requirements, including without limitation, a deductible of no more than $10,000.00) 13. Entity Documents A. Botac VI Leasing, L.L.C. (a) Articles of Organization - Received (b) Operating Agreement, certified (c) Resolution authorizing transaction and persons authorized to sign for Botac B. Bailey's Moving and Storage (a) Resolution authorizing execution of Environmental Indemnity and person authorized to sign for Bailey's C. Big 0 Tires, Inc. (a) Resolution authorizing Guarantee and person authorized to sign D. Big 0 Development, Inc. (a) Resolution authorizing Guarantee and person authorized to sign 14. Acquisition Documents A. Assignment of Purchase Contract B. Deed C. Bill of Sale D. Settlement statements confirming downpayment of $200,000.00 15. UCC - A. Termination of Barclay UCC-1 Financing Statement 16. Operating Statement 17. Certification of Net Operating Income 18. Letter stating no management agreement exists 19. Opinions -6- A. Counsel for Big 0 Tires, Inc. and Big 0 Development, Inc. B. Counsel for Botac (a) Utah Counsel (b) Colorado Counsel 20. Escrow Instructions 21. Settlement Statement A. 1% Assumption Fee B. Payment of Legal Fees ($5,000-fees; $1,000-costs) C. Payment of Title Fees D. $10,000 holdback for potential add't legal fees 22. Termination of original Lease (BIG 0 Development - Landlord & BIG 0 Tire - Tenant) -7- EX-10.66 7 COM. CONTRACT TO BUY/SELL EXHIBIT 10.66 [LOGO] CB COMMERCIAL The printed portion of this form, except (italicized) (differentiated) additions, have been approved by the Colorado Real Estate Commission. (CBS 2-1-94) ------------------------------------------------------------------- THIS FORM HAS IMPORTANT LEGAL CONSEQUENCES AND THE PARTIES SHOULD CONSULT LEGAL AND TAX OR OTHER COUNSEL BEFORE SIGNING. COMMERCIAL CONTRACT TO BUY AND SELL REAL ESTATE March 17, 1994 1. PARTIES AND PROPERTY. Bailey's Moving and Storage and/or Assigns buyer(s) [Buyer] (as joint tenants/tenants in common) agrees to buy, and the undersigned seller(s) [Seller], agrees to sell, on the terms and conditions set forth in this contract, the following described real estate in the County of Arapahoe, Colorado, to wit: Lot 5, Lincoln Executive Center, an administrative replat of Lot 5 of Filing No. 1 County of Arapahoe, State of Colorado known as 11755 East Peakview Avenue, Englewood, Colorado 80111 ------------------------------------------------------------------ Street Address City State Zip together with all interest of Seller in vacated streets and alleys adjacent thereto, all easements and other appurtenances thereto, all improvements thereon and all attached fixtures thereon, except as herein excluded (collectively the Property). 2. INCLUSIONS/EXCLUSIONS. The purchase price includes the following items (a) if attached to the Property on the date of this contract: lighting, heating, plumbing, ventilating, and air conditioning fixtures, TV antennas, water softeners, smoke/fire/burglar alarms, security devices, inside telephone wiring and connecting blocks/jacks, plants, mirrors, floor coverings, intercom systems, built-in kitchen appliances, sprinkler systems and controls; (b) if on the Property whether attached or not on the date of this contract: storm windows, storm doors, window and porch shades, awnings, blinds, screens, curtain rods, drapery rods, all keys and (c) The above-described included items (Inclusions) are to be conveyed to Buyer by Seller by bill of sale at the closing, free and clear of all taxes, liens and encumbrances, except as provided in Section 12. The following attached fixtures are excluded from this sale: None. 3. PURCHASE PRICE AND TERMS. The purchase price shall be $3,200,000.00, payable in U.S. dollars by Buyer as follows: (Complete the applicable terms below.) (a) Earnest Money: $____ in the form of a promissory note, as earnest money deposit and part payment of the purchase price, payable to and held by *See Addendum "A", broker, in its trust account on behalf of both Seller and Buyer. Broker is authorized to deliver the earnest money deposit to the closing agent, if any, at or before closing. The balance of $3,150,000.00 (purchase price less earnest money) shall be paid as follows: *See Addendum "A". (b) Cash at Closing. $100,000.00, plus closing costs, to be paid by Buyer at closing in funds which comply with all applicable Colorado laws, which include cash, electronic transfer funds, certified check, savings and loan teller's check, and cashier's check (Good Funds). Subject to the provisions of Section 4, if the existing loan balance at the time of closing shall be different from the loan balance in Section 3, the adjustment shall be made in Good Funds at closing or paid as follows: _____________________________________________________________________ _____________________________________________________________________________. (d) Assumption. $2,800,000.00 by Buyer's assuming and agreeing to pay an existing loan in this approximate amount, presently payable at $_______ per month principal, interest presently at ___% per annum, and including escrow for the following as indicated: real estate taxes, property insurance premium, mortgage insurance premium, and ________ Buyer agrees to pay a loan transfer fee not to exceed $______. At the time of assumption, the new interest rate shall not exceed _____% per annum and the new monthly payment shall not exceed $______ principal and interest, plus escrow, if any. Seller ___ shall __ shall not be released from liability on said loan. If applicable, compliance with the requirements for release from liability shall be evidenced by delivery at closing of an appropriate letter from lender. Cost payable for release of liability shall be paid by _______ in an amount not to exceed $_______. 7. ASSIGNABLE. This contract shall be assignable by Buyer without Seller's prior written consent. Except as so restricted, this contract shall inure to the benefit of and be binding upon the heirs, personal representatives, successors and assigns of the parties. 8. EVIDENCE OF TITLE. Seller shall furnish to Buyer, at Seller's expense, a current commitment for owner's ALTA title insurance policy in an amount equal to the purchase price on or before April 8, 1994 (Title Deadline). Buyer may require of Seller that copies of instruments (or abstracts of instruments) listed in the schedule of exceptions (Exceptions) in the title insurance commitment also be furnished to Buyer at Seller's expense. This requirement shall pertain only to instruments shown of record in the office of the clerk and recorder of the designated county or counties. The title insurance commitment, together with any copies or abstracts of instruments furnished pursuant to this Section 8, constitute the title documents (Title Documents) Buyer, or Buyer's designee, must request Seller, in writing, to furnish copies or abstracts of instruments listed in the schedule of exceptions no later than five (5) calendar days after Title Deadline. If Seller furnishes a title insurance commitment, Seller will pay the premium at closing and have the title insurance policy delivered to Buyer as soon as practicable after closing. 9. TITLE. (a) Title Review. Buyer shall have the right to inspect the Title Documents or abstract. Written notice by Buyer of unmerchantability of title or of any other unsatisfactory title condition shown by the Title Documents or abstract shall be signed by or on behalf of Buyer and given to Seller on or before five (5) calendar days after Title Deadline, or within five (5) calendar days after receipt by Buyer of any Title Document(s) or endorsement(s) adding new Exception(s) to the title commitment together with a copy of the Title Document adding new Exception(s) to title. If Seller does not receive Buyer's notice by the date(s) specified above, Buyer accepts the condition of title as disclosed by the Title Documents as satisfactory. (b) Matters Not Shown by the Public Records. Seller shall deliver to Buyer, on or before the Title Deadline set forth in Section 8, true copies of all lease(s) and survey(s) in Seller's possession pertaining to the Property and shall disclose to Buyer all easements, liens or other title matters not shown by the public records of which Seller has actual knowledge. Buyer shall have the right to inspect the Property to determine if any third party(s) has any right in the Property not shown by the public records (such as an unrecorded easement, unrecorded lease, or boundary line discrepancy). Written notice of any unsatisfactory condition(s) disclosed by Seller or revealed by such inspection shall be signed by or on behalf of Buyer and given to Seller on or before May 6, 1994. If Seller does not receive Buyer's notice by said date, Buyer accepts title subject to such rights, if any, of third parties of which Buyer has actual knowledge. (c) Special Taxing Districts. SPECIAL TAXING DISTRICTS MAY BE SUBJECT TO GENERAL OBLIGATION INDEBTEDNESS THAT IS PAID BY REVENUES PRODUCED FROM ANNUAL TAX LEVIES ON THE TAXABLE PROPERTY WITHIN SUCH DISTRICTS. PROPERTY OWNERS IN SUCH DISTRICTS MAY BE PLACED AT RISK FOR INCREASED MILL LEVIES AND EXCESSIVE TAX BURDENS TO SUPPORT THE SERVICING OF SUCH DEBT WHERE CIRCUMSTANCES ARISE RESULTING IN THE INABILITY OF SUCH A DISTRICT TO DISCHARGE SUCH INDEBTEDNESS WITHOUT SUCH AN INCREASE IN MILL LEVIES. BUYER SHOULD INVESTIGATE THE DEBT FINANCING REQUIREMENTS OF THE AUTHORIZED GENERAL OBLIGATION INDEBTEDNESS OF SUCH DISTRICTS, EXISTING MILL LEVIES OF SUCH DISTRICT SERVICING SUCH INDEBTEDNESS AND THE POTENTIAL FOR AN INCREASE IN SUCH MILL LEVIES. In the event the Property is located within a special taxing district and Buyer desires to terminate this contract as a result, if written notice is given to Seller at or before the date set forth in subsection 9(b), this contract shall then terminate. If Seller does not receive Buyer's notice by the date specified above Buyer accepts the effect of the Property's inclusion in such special taxing district(s) and waives the right to so terminate. (d) Right to Cure. If Seller receives notice of unmerchantability of title or any other unsatisfactory title condition(s) as provided in subsection (a) or (b) above, Seller shall use reasonable effort to correct said unsatisfactory title condition(s) prior to the date of closing. If Seller fails to correct said unsatisfactory title condition(s) on or before the date of closing, this contract shall then terminate; provided, however, Buyer may, by written notice received by Seller, on or before closing, waive objection to said unsatisfactory title condition(s). 10. INSPECTION. Buyer or any designee, shall have the right to have inspection(s) of the physical condition of the Property and Inclusions, at Buyer's expense, if written notice of any unsatisfactory condition, signed by or on behalf of Buyer, is not received by Seller on or before May 27, 1994 (Objection Deadline), the physical condition of the Property and inclusions shall be deemed to be satisfactory to Buyer. If such notice is received by Seller as set forth above, and if Buyer and Seller have not agreed, in writing, to a settlement thereof on or before June 1, 1994 (Resolution Deadline), this contract shall terminate three calendar days following the Resolution Deadline, unless, within the three calendar days, Seller receives written notice from Buyer waiving objection to any unsatisfactory condition. Buyer is responsible for and shall pay for any damage which occurs to the Property and Inclusions as a result of such inspection. 11. DATE OF CLOSING. The date of closing shall be December 1, 1994, or by mutual agreement at an earlier date. The hour and place of closing shall be designated by Chicago Title Company. 12. TRANSFER OF TITLE. Subject to tender or payment at closing as required herein and compliance by Buyer with the other terms and provisions hereof, Seller shall execute and deliver a good and sufficient general warranty deed to Buyer, on closing, conveying the Property free and clear of all taxes except the general taxes for the year of closing. Title shall be conveyed free and clear of all liens for special improvements installed as of the date of Buyer's signature hereon, whether assessed or not: except (i) distribution utility easements (including cable TV), (ii) those matters reflected by the Title Documents accepted by Buyer in accordance with subsection 9(a), (iii) those rights, if any, of third parties in the property not shown by the public records in accordance with subsection 9(b), (iv) inclusion of the Property within any special taxing district, and (v) subject to building and zoning regulations. 13. PAYMENT OF ENCUMBRANCES. Any encumbrance required to be paid shall be paid at or before closing from the proceeds of this transaction or from any other source. 14. CLOSING COSTS, DOCUMENTS AND SERVICES. Buyer and Seller shall pay, in Good Funds, their respective closing costs and all other items required to be paid at closing, except as otherwise provided herein. Buyer and Seller shall sign and complete all customary or required documents at or before closing. 15. PRORATIONS. General taxes for the year of closing, based on the taxes for the calendar year immediately preceding closing, rents, water and sewer charges, owner's association dues, and interest on continuing loan(s), if any, and shall be prorated to date of closing. 16. POSSESSION. Possession of the Property shall be delivered to Buyer as follows: December 1, 1994 8:00 A.M. Denver, Colorado time , subject to the following lease(s) or tenancy(s): See Addendum "A" If Seller, after closing, fails to deliver possession on the date herein specified. Seller shall be subject to eviction and shall be additionally liable to Buyer for payment of $1,000.00 per day from the date of agreed possession until delivered. 17. CONDITION OF AND DAMAGE TO PROPERTY. Except as otherwise provided in this contract, the Property and inclusions shall be delivered in the condition existing as of the date of this contract, ordinary wear and tear excepted. In the event the Property shall be damaged by fire or other casualty prior to time of closing, in an amount of not more than ten percent of the total purchase price, Seller shall be obligated to repair the same before the date of closing. In the event such damage is not repaired within said time or if the damages exceed such sum, this contract may be terminated at the option of Buyer. Should Buyer elect to carry out this contract despite such damage, Buyer shall be entitled to credit for all the insurance proceeds resulting from such damage to the Property and Inclusions, not exceeding, however, the total purchase price. Should any Inclusion(s) or service(s) fail or be damaged between the date of this contract and the date of this contract and the date of closing or the date of possession, whichever shall be earlier, then Seller shall be liable for the repair or replacement of such Inclusion(s) or service(s) with a unit of similar size, age and quality, or an equivalent credit, less any insurance proceeds received by Buyer covering such repair or replacement. 18. TIME OF ESSENCE/REMEDIES. Time is of the essence hereof. If any note or check received as earnest money hereunder or any other payment due hereunder is not paid, honored or tendered when due, or if any other obligation hereunder is not performed or waived as herein provided, there shall be the following remedies: (a) IF BUYER IS IN DEFAULT: (Check one box only.) (1) Specific Performance. --- Seller may elect to treat this contract as cancelled, in which case all payments and things of value received hereunder shall be forfeited and retained on behalf of Seller, and Seller may recover such damages as may be proper, or Seller may elect to treat this contract as being in full force and effect and Seller shall have the right to specific performance or damages, or both. X (2) Liquidated Damages --- All payments and things of value received hereunder shall be forfeited by Buyer and retained on behalf of Seller and both parties shall thereafter be released from all obligations hereunder. It is agreed that such payments and things of value are LIQUIDATED DAMAGES and (except as provided in subsection (c)) are SELLER'S SOLE AND ONLY REMEDY for Buyer's failure to perform the obligations of this contract. Seller expressly waives the remedies of specific performance and additional damages. (b) IF SELLER IS IN DEFAULT: --- Buyer may elect to treat this contract as cancelled, in which case all payments and things of value received hereunder shall be returned and Buyer may recover such damages as may be proper, or Buyer may elect to treat this contract as being in full force and effect and Buyer shall have the right to specific performance or damages, or both. (c) COSTS AND EXPENSES. --- Anything to the contrary herein notwithstanding, in the event of any arbitration or litigation arising out of this contract, the arbitrator or court shall award to the prevailing party all reasonable costs and expenses, including attorney fees. 19. EARNEST MONEY DISPUTE. Notwithstanding any termination of this contract, Buyer and Seller agree that, in the event of any controversy regarding the earnest money and things of value held by broker or closing agent, unless mutual written instructions are received by the holder of the earnest money and things of value, broker or closing agent shall not be required to take any action but may await any proceeding, or at broker's or closing agent's option and sole discretion may interplead all parties and deposit any moneys or things of value into a court of competent jurisdiction and shall recover court costs and reasonable attorney fees. 20. ALTERNATIVE DISPUTE RESOLUTION MEDIATION. If a dispute arises between the parties relating to this contract, the parties agree to submit the dispute to mediation. The parties will jointly appoint an acceptable mediator and will share equally in the cost of such mediator. If mediation proves unsuccessful the parties may then proceed with such other means of dispute resolution as they so choose. 21. ADDITIONAL PROVISIONS: a. ACCEPTANCE/COMMISSION. Seller accepts the above proposal this______day of__________________, 19___. Seller shall pay to the Listing Company a commission of seven percent (7)% of the gross purchase price or__________as agreed upon between the Seller and Listing Company for services in this transaction. In the event of forfeiture of payments and things of value received hereunder, such payments and things of value shall be divided between Listing Company and Seller, one-half thereof to Listing Company, but not to exceed the commission, and the balance to Seller. Listing company and CB Commercial Real Estate Group, Inc. to divide commission equally. ____________________________________ ________________________________ Seller Date Seller Date Seller's Address:___________________________________________ b. COMPLIANCE. The parties hereto agree to comply with all applicable federal, state and local laws, regulations, codes, ordinances and administrative orders having jurisdiction over the parties, property or the subject matter of this Agreement, including, but not limited to, the 1964 Civil Rights Act and all amendments thereto, the Foreign Investment In Real Property Tax Act, the Comprehensive Environmental Response Compensation and Liability Act, and The Americans With Disabilities Act. 22. RECOMMENDATION OF LEGAL COUNSEL. By signing this document, Buyer and Seller acknowledge that the Selling Company or the Listing Company has advised that this document has important legal consequences and has recommended the examination of title and consultation with legal and tax or other counsel before signing this contract. 23. TERMINATION. In the event this contract is terminated, all payments and things of value received hereunder shall be returned and the parties shall be relieved of all obligations hereunder, subject to Section 19. 24. SELLING COMPANY BROKER RELATIONSHIP. The selling broker CB Commercial Real Estate Group, Inc., and its salespersons have been engaged as transaction broker, Selling Company has previously disclosed in writing to the Buyer that different relationships are available which include buyer agency, seller agency, dual agency, or transaction broker. 25. NOTICE TO BUYER. Any notice to Buyer shall be effective when received by Buyer, or, if this box is checked ___ when received by Selling Company. 26. NOTICE TO SELLER. Any notice to Seller shall be effective when received by Seller or Listing Company. 27. MODIFICATION OF THIS CONTRACT. No subsequent modification of any of the terms of this contract shall be valid, binding upon the parties, or enforceable unless made in writing and signed by the parties. 28. ENTIRE AGREEMENT. This contract constitutes the entire contract between the parties relating to the subject hereof, and any prior agreements pertaining thereto, whether oral or written, have been merged and integrated into this contract. 29. NOTICE OF ACCEPTANCE COUNTERPARTS. This proposal shall expire unless accepted in writing by Buyer and Seller, as evidenced by their signatures below, and the offering party receives notice of such acceptance on or before 5:00 p.m. Denver time, March 25, 1994 (Acceptance Deadline). If accepted, this document shall become a contract between Seller and Buyer. A copy of this document may be executed by each party, separately, and when each party has executed a copy thereof, such copies taken together shall be deemed to be a full and complete contract between the parties. /s/ R. J. Walker ------------------------------ -------------------------------- Buyer Buyer Date of Buyer's signature: 3/18, 1994 Date of Buyer's signature , 19__ Buyer's Address: ---------------------------------------------------------- /s/ Steven P. Cloward, Seller ------------------------------------- --------------------------------- Seller Seller Date of Seller's signature: 4/5, 1994 Date of Seller's signature , 19__ Seller's Address: -------------------------------------------------------------- ================================================================================ The undersigned Broker(s) acknowledges receipt of the earnest money deposit specified in Section 3, and Selling Company confirms its Broker Relationship as set forth in Section 24. Selling Company________________________________________________________________ Name and Address By:_________________________ _______________________,19____ Signature Date Listing Company _______________________________________________________________ Name and Address By:__________________________ ________________________,19___ Signature Date -------------------------------------------------------------------------------- NOTE: Closing Instructions should be signed at the time this contract is signed. -------------------------------------------------------------------------------- ADDENDUM "A" TO THAT CONTRACT BETWEEN BIG-O DEVELOPMENT, INC. (SELLER) AND BAILEY'S MOVING AND STORAGE AND/OR ASSIGNS (BUYER) DATED MARCH 17, 1994 1. Survey: The Seller shall, at the Seller's expense, furnish the Buyer on or before April 15, 1994 with a current pinned or monumented boundary and improvement ALTA survey by a registered engineer or licensed land surveyor, reflecting the acreage and square footage of the Property, property dimensions, location of all improvements on the ground, location of all fences, ditches, easements, rights of way and adjacent roadways, and containing a certified legal description. Following delivery of the survey to the Buyer, the Buyer shall have five (5) business days to review the survey and, if the survey reflects matters in conflict with this contract, the Buyer shall give written notice of such fact to the Seller within five (5) business days. If such written notice is received, this contract shall be null and void and the deposit paid hereunder shall be refunded to the Buyer. Failure of the Buyer to so notify the Broker in writing shall be deemed a waiver on the part of the Buyer, and this contract shall remain in full force and effect. 2. Seller's Materials: Seller shall deliver to Buyer the following information and materials to the extent that it is available. Current preliminary title report and copies of all exceptions to title, a copy of the current property tax bill, copies of assessment payment schedules, if any, copies of surveys or parcel maps, a list of subcontractors who constructed the improvements, copies of management agreements and service contracts, copies of governmental approvals including the building permit and final inspection card, copies of construction drawings for the improvement including architectural, structural, and landscape plans and "as built" plans, copies of any leases and other agreements which will encumber the Property following close of escrow. 3. Big-O Tire Lease: To satisfy the remaining balance of the purchase price in accordance with Item Number 3 of this contract, Buyer to lease to Big-O Tire (Tenant) approximately 13,425 square feet of office space in the subject facility rent free for a period of four years commencing December 1, 1994. Tenant to be responsible for its pro rata share of the building NNN expenses and operating costs. Big-O Tire is to occupy the entire Second Floor of office space and the west half of the First Floor of existing office space. Big-O Tire to have access to the First Floor workout facility and adjoining restroom facilities. Bailey's Moving and Storage to have periodic access to the Second Floor conference room. In addition, Big-O Tire shall lease a 5,000 square foot fenced area in the warehouse for the same term as the office lease at a lease rate of $3.00 per square foot plus NNN expenses. Big-O Tire and Bailey's Moving and Storage will mutually execute a lease formalizing these terms and conditions during Buyer's inspection period. 4. Environmental Report: Seller to pay for and provide a new Level I audit for Buyer's review on or before April 22, 1994. Buyer's review of this report shall become a part of Buyer inspection of the Property and Item Number 10 of the contract shall apply. 5 . Floor Repair: Seller to repair, at Seller's expense, the warehouse slab, walls near the floor of the west side of the office areas, drainage and curb on the south side of the office area, and any other damaged areas within or outside the facility due to settling, all to Buyer's satisfaction prior to closing. [LOGO] CB COMMERCIAL EARNEST MONEY Promissory Note CB Commercial Real Estate Group, Inc. BROKERAGE AND MANAGEMENT LICENSED REAL ESTATE BROKER U.S.$50,000.00 Denver, Colorado Date _________________,1994 FOR VALUE RECEIVED, Bailey's Moving and Storage and/or assigns, jointly and severally, promise to pay to the order of owner of 11755 E. Peakview, Englewood, Colorado the sum of Fifty Thousand and No/100 ($50,000.00) Dollars, with interest at 0% percent per annum from N/A until paid. Both principal and interest are payable in U.S. dollars on or before May 27, 1994, payable at Chicago Title Company in accordance with the Commercial Contract to Buy and Sell Real Estate or at such other address a note holder may designate. Presentment, notice of dishonor, and protest are hereby waived. If this note is not paid when due, I/we agree to pay all reasonable costs of collection, including attorney's fees. /s/ R. J. Walker ----------------------------- Maker's signature ----------------------------- Maker's signature This note is given as earnest money for the contract on the following property: The printed portions of this form approved by Colorado Real Estate Commission (BAC 17-12-83) [LOGO] CB COMMERCIAL The printed portions of this form, except (italicized) (differentiated) additions, have been approved by the Colorado Real Estate Commission (TBD 26-1- 94) --------------------------------------- NOTE: DIFFERENT BROKERAGE RELATIONSHIPS ARE AVAILABLE WHICH INCLUDE SELLER AGENCY, DUAL AGENCY, BUYER AGENCY, OR TRANSACTION-BROKER. TRANSACTION-BROKER DISCLOSURE (BUYER) CB Commercial Real Estate Group, Inc. and its salespersons are working with you as a transaction-broker. We assist you throughout the real estate transaction with communication, advice, negotiation, contracting and closing without being an agent or advocate for you or the seller. You are not vicariously liable (legally responsible) for our actions and a written contract with us is not required. For purposes of this disclosure, buyer also means "tenant" and seller also means "landlord". As a transaction-broker we will: . Disclose to you any adverse material facts which we actually know about the property: . Perform any oral or written agreement made with you: . Exercise reasonable skill and care: . Present all offers in a timely manner: . Advise you regarding the transaction, including suggesting that you obtain expert advice on material matters about which we know but the specifics of which are beyond our expertise: . Account to you promptly for all money or property we receive: . Assist you in complying with the terms and conditions of any contract and with the closing of the transaction. . Assist you and the seller without regard to race, creed, sex, religion, national origin, familial status. marital status, or handicap. As a transaction-broker we will not disclose the following information without your informed consent: . That you are willing to pay more than what you offer: . What the motivating factors are for you in buying or leasing the property; . That you will agree to financing terms other than those offered: . Any material information about you unless disclosure is required by law or if lack of disclosure would constitute dishonest dealing or fraud, except that we are required to disclose all adverse material facts pertaining to your financial ability to perform the terms of the transaction and whether you intend to occupy the property as a principal residence. THIS IS NOT A CONTRACT. We have been given a copy of this Transaction-Broker Disclosure on (date)______________________ BAILEY'S MOVING AND STORAGE AND/OR ASSIGNS /s/ R. J. Walker ----------------------------------- ------------------------------- Buyer Buyer On (date) 3/18/94 I provided the buyer(s) with a copy of this Disclosure and have kept a copy for our records. CB COMMERCIAL REAL ESTATE GROUP, INC. ------------------------------------ ------------------------------- Company Licensee ============================================================================== No. TBD26-1-94. TRANSACTION-BROKER DISCLOSURE (BUYER) ============================================================================= The printed portions of this form, except (italicized) (differentiated) additions, have been approved by the Colorado Real Estate Commission. (CP 40-1-94) --------------------------------------- THIS FORM HAS IMPORTANT LEGAL CONSEQUENCES AND THE PARTIES SHOULD CONSULT LEGAL AND TAX OR OTHER COUNSEL BEFORE SIGNING. COUNTERPROPOSAL March 25, 1994 RE: Proposed contract to buy and sell the following described real estate in the County of Arapahoe Colorado, to wit: Lot 5, Lincoln Executive Center, an administrative replat of Lot 5 of Filing No. 1 County of Arapahoe, State of Colorado known as No. 11755 East Peakview Avenue, Englewood, CO 80111, dated March 17, 1994, between Big O Tires, Seller, and Bailey's Moving and Storage and/or assigns, Buyer. The undersigned accepts the proposed contract, subject to the following amendments: Paragraph 3(b). Cash at closing to be $200,000.00 plus the earnest money deposit of $50,000.00 payable after waiver of contingencies or May 27, 1994, whichever is earlier. Paragraph 3(d). Buyer and Seller shall share equally in the cost of assumption fee. Addendum "A" 1. Survey. Unless required from lender to process assumption, Seller may reuse original survey used when constructing building. Paragraph 21. Acceptance/Commission. Seller shall pay Listing Company six percent (6%) of gross purchase price of $3,200,000.00 All other terms and conditions shall remain the same. This counterproposal shall expire unless accepted in writing, by Buyer and Seller, as evidenced by their signatures below, and the offering party to this document receives notice of such acceptance on or before April 11, 1994. If accepted, the proposed contract, as amended hereby, shall become a contract between Seller and Buyer. Big O Tires, Inc. /s/ Steven P. Cloward --------------------------- ------------------------------------------- Seller Seller Date of Seller's signature 4/5/94 Date of Seller's signature __________, 19__ Seller's Address 11755 East Peakview Avenue, Englewood, CO 80111 --------------------------------------------------------------- Bailey's Moving and Storage ----------------------------- ------------------------------------------ Buyer Buyer Date of Buyer's signature ______, 19___ Date of Buyer's signature ______, 19___ Buyer's Address ________________________________________________________________ N.B. When this counterproposal form is used, the proposed contract is not to be signed by the party initiating this counterproposal. This counterproposal must be securely attached to the proposed contract. =============================================================================== ATTACHMENT NO. 1 TO COUNTER PROPOSAL ADDENDUM "A" 3. Big O Tires Lease. Buyer hereby agrees to lease back to Big O Tires, Inc. ("Big O"), the approximately 18,000 square feet of office space contained in the office building that is separate from the warehouse facilities (and does not includes offices within the warehouse facilities) (the "Big O Office Space"). As an inducement to Buyer to lease the Big O Office Space back to Big O, Big O will build to Buyer's needs and specifications, office facilities adjacent to the existing offices within the warehouse for use by the Buyer ("Buyer's Office Space") and Big O will pay up to $80,000 in costs for such construction. Big O will lease the Big O Office Space for a term of three (3) years, for a base rent of $0.00 during this term, plus payment of a pro rata share of the real estate taxes, insurance and the operating and maintenance expenses on the entire premises. In the event Big O's cost to construct Buyer's Office Space exceeds $80,000, Big O will be granted an additional term on its Lease that is sufficient to provide Big O credit for such overage, on the basis of $6.00 per square foot of annual rent, and Big O shall continue to lease Big O's Office Space over the additional term under the same terms and conditions of the Lease. In the event Big O does not incur $80,000 in construction of Buyer's Office Space, Big O shall pay to Buyer such shortfall as base rent for a portion of the three (3) year term, on the basis of $6.00 per square foot of annual rent for the Big O Office Space. The Lease for the Big O Office Space shall also grant to Big O two (2) three (3) year options to extend the term of the Lease beyond the original term, at a base rent determined by the parties to be at market rate at that time. EX-10.67 8 CONFIDENTIAL AGREEMENT EXHIBIT 10.67 CONFIDENTIALITY AGREEMENT This Confidentiality Agreement ("Agreement") is made this ___ day of September, 1994 between Big O Tires, Inc., a Nevada corporation, having an address at 11755 East Peakview Avenue, Englewood, Colorado 80111 ("Big O" or "Company") and Kenneth W. Pavia, Sr., individually and as the sole general partner of Balboa Investment Group, L.P., a California Limited Partnership having an address at 1101 East Balboa Boulevard, Newport Beach, California 92661-1313, (collectively referred to as "Balboa"). RECITALS A. Big O's Board of Directors formed an investment committee ("Investment Committee") comprised of the six independent directors to work with the Company's investment banker, PaineWebber, Incorporated ("PaineWebber") to explore all alternatives for enhancing the values of the Company. B. Big O's Board of Directors unanimously agreed to invite Balboa as a participant with the Investment Committee. Balboa has agreed to accept such offer. C. Big O desires that Balboa not disclose certain nonpublic information pertaining to the Company that Big O may provide or which PaineWebber may provide to Balboa. NOW, THEREFORE, in consideration of Big O or PaineWebber disclosing certain nonpublic information to Balboa, the receipt and adequacy of which consideration is hereby acknowledged, Balboa agrees as follows: 1. Balboa acknowledges that all information, including, without limitation, information pertaining to any discussions, negotiations and transactions with third parties involving any acquisition, sale, merger or combination of Big O, that Big O, PaineWebber and/or members or participants of the Investment Committee may disclose to Balboa is confidential and proprietary nonpublic information of Big O and, without the prior written consent of Big O, Balboa agrees that it will not disclose such nonpublic information directly or indirectly to any person or entity. Notwithstanding the foregoing, Balboa may disclose such confidential and proprietary nonpublic information to its representatives provided such Balboa representatives sign a confidentiality agreement in the form of this Confidentiality Agreement. 2. Balboa hereby acknowledges that it is aware (and that Balboa shall inform any Balboa representative to whom it furnishes any of the information) that the securities laws prohibit any person who has material, nonpublic information concerning the Company from purchasing or selling securities of the Company and from communicating any such information to any other person under circumstances in which it is reasonably foreseeable that such person is likely to purchase or sell any such securities or is likely to influence the purchase or sell of any such securities. 3. Balboa agrees that all of the nonpublic information provided to Balboa by Big O as described in paragraphs 1 and 2 hereof shall be deemed to be confidential and proprietary nonpublic information of Big O, unless otherwise designated by Big O. All such written Big O nonpublic information provided to Balboa shall be immediately returned to Big O upon termination of this Agreement and Balboa shall not keep any copies thereof. Balboa acknowledges that any disclosure of such Big O nonpublic information in breach of this Agreement will cause Big O 1 irreparable harm, for which an adequate remedy at law shall not exist and, that upon breach of this Agreement by Balboa, Big O may seek and receive an immediate injunction, restraining order or preliminary injunction against Balboa to further prevent the breach of this Agreement, in addition to any other remedy to which Big O would be entitled as a result of the breach of this Agreement by Balboa. Provided Balboa has been found by a court of competent jurisdiction to have breached this Agreement, Big O shall be entitled to an award of its reasonable costs and attorney fees incurred in enforcing this Agreement. 4. Notwithstanding anything to the contrary in this Agreement, this Agreement shall not restrict Balboa's disclosure or use of any of the information which (a) is or becomes generally available to or known by the public (other than as a result of any disclosure by Balboa or Balboa's representatives), (b) was or becomes available to Balboa on a non- confidential basis from a source (other than the Company or any of its subsidiaries or any of their respective officers, directors, employees, agents, including PaineWebber, affiliates or associates or any of their respective representatives) which source is entitled to disclose such information to Balboa on a non-confidential basis, or (c) has been independently acquired or developed by Balboa without violating any of Balboa's obligations under this Agreement. If Balboa becomes legally compelled by subpoena or other legal process to disclose any of the information (or if any person to whom Balboa has, or any of Balboa's representatives have, furnished any of the information becomes so compelled), Balboa will provide the Company with prompt written notice thereof so that the Company may seek a protective order or other appropriate remedy. If such a protective order or other remedy is not obtained, or the Company waives compliance with the provisions of this Agreement, Balboa (or Balboa's representative, as applicable) shall disclose only that portion of the information which is legally required to be disclosed and will exercise reasonable efforts to obtain assurances that the information disclosed will be treated confidentially. Notwithstanding anything contained in this Agreement to the contrary, Balboa may disclose any information that it is required to disclose in order that Balboa not commit a violation of law. 5. Big O hereby agrees to reimburse Balboa for all reasonable out of pocket expenses incurred by Balboa in attending the Investment Committee meetings. Such reimbursements will be paid within ten (10) business days of the date Big O receives Balboa's expense voucher and expense receipts. 6. The provisions of this Agreement shall terminate as to Balboa on the earlier of (i) mutual agreement of the parties; (ii) six months from the date PaineWebber's assignment to explore alternatives to enhance the values of the Company is terminated; or; (iii) in the event that the nonpublic information covered by this Agreement becomes publicly available other than through disclosure by Balboa in breach of this Agreement. 7. This Agreement shall be governed by and interpreted under the laws of the state of Colorado. 2 This Agreement is executed as of the date and year first above written, and may be executed in counterparts. BIG O TIRES, INC., a Nevada corporation By: John E. Siipola --------------------------------------- /s/ John E. Siipola --------------------------------------- John E. Siipola, Chairman ATTEST: /s/ Philip J. Teigen ---------------------------- Philip J. Teigen, Secretary (S E A L) Individually, By: /s/ Kenneth W. Pavia, Sr. -------------------------------------- Kenneth W. Pavia, Sr., individually Balboa Investments Group, L.P. By: /s/ Kenneth W. Pavia, Sr. G.P. ---------------------------------------- Kenneth W. Pavia, Sr., general partner /s/ Scott R. Haber --------------------------------------- Legal Counsel 3 EX-10.68 9 AMD#1 ESOP & TRUST EXHIBIT 10.68 AMENDMENT NO. 1 TO THE BIG O TIRES, INC. EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST AGREEMENT ------------------------------------------------------------------- Pursuant to and in accordance with the provisions of Section 10.5(a) of the Big O Tires, Inc. Employee Stock Ownership Plan and Trust Agreement dated June 30, 1994 ("Plan and Trust Agreement"), the Company hereby amends the Plan and Trust Agreement, effective as of September 12, 1994, as follows: SECTION 10.5(a): This Section is amended to read as follows: --------------- "(a) AMENDMENTS BY CORPORATION. The Corporation may at any time and from time to time amend this plan and trust agreement, provided, however, that no amendment shall be made at any time by the Corporation pursuant to which the trust fund may be diverted to purposes other than for the exclusive benefit of the participants and their beneficiaries, and provided further that no amendment shall discriminate in favor of the employees or partners, officers, shareholders or Highly Compensated Employees. All amendments shall be in writing. Notwithstanding the foregoing, the plan shall not be amended more than once every six (6) months, other than to comport with changes in the Internal Revenue Code, the Employee Retirement Income Security Act, or the rules thereunder pursuant to Section 10.5b, below." IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 1 to the Plan and Trust Agreement effective this 12th day of September, 1994. BIG O TIRES, INC. By: /s/ John B. Adams ------------------------------ John B. Adams Executive Vice President EMPLOYER COLORADO STATE BANK By: /s/ Sharon L. Mowatt ------------------------------ Sharon L. Mowatt Assistant Vice President and Trust Officer TRUSTEE EX-10.69 10 DEVEL. MANAG. AGR EXHIBIT 10.69 DEVELOPMENT MANAGEMENT AGREEMENT -------------------------------- THIS DEVELOPMENT MANAGEMENT AGREEMENT ("Agreement") made as of the _____ day of September, 1994, by and between ROSS DEVELOPMENT MANAGEMENT GROUP, INC., a Colorado corporation, (hereinafter called "Development Manager") and BIG O DEVELOPMENT, INC., a Colorado corporation, and BIG O TIRE, INC., a California corporation, jointly and severally (hereinafter collectively called "Owner"). WHEREAS, the Owner is desirous of developing certain real property which it is in the process of acquiring (each parcel of real property is individually referred to herein as a "Site" and collectively as the "Sites") as is more particularly described in Exhibit A (as amended from time to time) attached hereto and incorporated herein by this reference. For purposes of this Agreement, the Owner has designated its responsibilities hereunder to Big O Tires, Inc. Franchise Approval Review Management Committee ("Farm Committee"); WHEREAS, the Owner desires to develop each Site as a Big O Tire Store based on prototypical designs of Owner (each Site and all improvements to be constructed on each Site are each referred to as the "Project" and collectively referred to as the "Projects"); and WHEREAS the Owner desires to engage Development Manager to supervise the development and construction of the Projects on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the premises and the respective undertakings of the parties hereinafter set forth, it is hereby agreed as follows: 1. General Project Management Responsibilities. Development Manager shall be responsible for managing and supervising the development of each Project so that each Project is completed in accordance with (i) those certain designs for the Projects ("Project Design") of Owner, which initial Project Design (known as "Prototype I") is attached hereto and incorporated herein by this reference as Exhibit B; (ii) that certain budget for the Project ("Project Target Budget"), which initial Project Target Budget is attached hereto as Exhibit C and incorporated herein by this reference, approved by Owner (Exhibits A, B, and C are hereinafter collectively referred to as "Plan Documents"), as the Plan Documents or any of them shall be amended from time to time as hereinafter provided. The development and construction of each Project shall be accomplished serially, in phases, (each a Phase and collectively "Phases"), as defined below, and the Development Manager shall have the responsibilities set forth below as to each Phase. The commencement of the work of Development Manager for each Phase shall occur upon the execution of the Authorization to Proceed substantially in accordance with Exhibit D attached hereto; provided that an Authorization to Proceed is executed with respect to a Site by Owner. The amounts set forth on Exhibit C are estimates and will likely be adjusted on a Site by Site basis from 2 time to time to reflect variations in acquisition costs and construction costs. The Phases shall consist of the following: A. Phase A Work - Preliminary Due Diligence, Site Design and Budgeting. Development Manager shall, with respect to each site, commence the following activities: (1) Review documentation submitted by Owner; (2) Review status of title including development restrictions imposed by private covenants and/or zoning, subdivision or similar ordinances; (3) Review (to the extent available) soils and environmental reports; (4) Preparation of site plan sketches showing proposed layout, parking configuration and adjacent streets in accordance with applicable requirements and restrictions; (5) Preparation of preliminary development budget; (6) Preparation of Phase A Summary Report of findings, including recommendation of Development Manager as to whether or not to proceed; B. Phase B - Architectural, Engineering Entitlements and Final GMP Budget. If Owner, after review of the Phase A Summary Report elects to proceed, Development Manager shall, upon receipt of a Phase B Authorization to Proceed, commence the following activities: (1) To the extent not previously accomplished, obtain a soils report; 3 (2) To the extent not previously accomplished, obtain a "Phase I" environmental report of a Site from the seller of a Site; (3) Finalize the site plan for a Project; (4) Prepare Architectural/Engineering, Construction Documents and Bid Specifications in accordance with an approved site plan; (5) Prepare final budget; (6) Negotiate and execute contracts for construction (Guaranteed Maximum Price); (7) Negotiate contracts for acquisition of a Site; and (8) Prepare Phase B Summary Report of findings including recommendation of Development Manager as to whether or not to proceed. C. Phase C - Site Acquisition and Construction. If Owner, after review of the Phase B Summary Report, elects to proceed, Development Manager shall, upon receipt of a Phase C Authorization to Proceed, commence the following activities: (1) Acquire the Site in the name of the Owner at the price not in excess of that amount set forth in Exhibit C; (2) Obtain all required permits required for construction activities; and (3) Commence and complete construction. 4 2. Controls. A. Development Manager shall establish and implement appropriate administrative and financial controls for the design and construction of each Project in accordance with the requirements set forth herein. Without limiting the foregoing, the Development Manager shall: (1) select all professionals to be utilized in the acquisition of a Site and the development of the Project, including, without limitation, architects, engineers, attorneys, contractors, and consultants in connection with the design and development of the Project (the "Project Team"); (2) subject to paragraph 6D hereof, contract with the individuals comprising the Project Team, in Development Manager's own name, for completion of the Project in accordance with the Project Design, at costs not to exceed the Project Budget and within the time frame set forth in the Project Schedule, subject to paragraph 19 of this Agreement, and each such contract shall be in the name of Development Manager and include a provision that Owner is a third party beneficiary of such contract and that Owner shall have the right, in addition to Development Manager, to enforce such contract and exercise all remedies under such contract (all warranties under each contract shall be assigned to Owner); (3) coordinate and administer the activities of the Project Team; (4) perform all due diligence investigations related to a Site as Development Manager deems reasonably necessary; 5 (5) participate in conferences and render advice and assistance to aid in developing economical, efficient and desirable design and construction procedures; (6) review, approve for payment, and submit to the Owner for approval and payment of all certified applications for payments under any architectural agreement, or general contractor's agreement providing funds for the benefit of the Owner for the design or construction of the Project, which submittal shall be made on a monthly basis; (7) monitor and supervise compliance with all terms and conditions applicable to the Owner or the Project contained in any governmental permit or approval required or obtained for the lawful construction of the Project or in any insurance policy affecting or covering the Project; (8) furnish such consultation and advice relating to the Project as may be reasonably requested from time to time by the Owner; (9) keep the Owner fully informed on a regular basis, through the furnishing of reports for Farm Committee review, together with attendance at periodic meetings to discuss and review the status and the progress of the design and construction of each Project. (10) implement and review compliance of all of the Owner's instructions, requirements, and approvals and all agreements with the Project Team; and (11) file on behalf of Owner any notices of completion required or permitted to be filed upon the completion of 6 any portion of the Project and take such customary and reasonable actions as may be required to supervise the obtaining of all certificates of occupancy or equivalent documents required to permit the occupancy of any portion of the Project. B. Development Manager shall use reasonable efforts to insure that the Project Architect ("Architect"), and the other qualified consultants inspect the progress of construction of the Project to verify, among other matters, that the construction is being carried out substantially in accordance with the Plan Documents and to have the Project Architect so certify in writing along with each construction draw request. In the event construction or such inspections are not being so carried out based upon Development Manager's own inspection of the Project or reports obtained from such Architect or consultants, Development Manager shall promptly notify the Owner and take appropriate action to minimize loss or delay in the construction of the Project and to protect Owner's right to enforce compliance with the Plan Documents and the respective agreements entered into with the members of the Project Team. C. Development Manager shall hire and retain, at the expense of Development Manager and as employees of Development Manager, and not as employees of the Owner, such personnel as may be required to properly perform Development Manager's functions hereunder. The compensation, retention and performance of Development Manager's employees shall be controlled exclusively by Development Manager, and Development Manager shall be responsible for complying with all laws and regulations affecting such 7 employment, including the provisions of any benefits or compensation required by statute or contract. Development Manager, on behalf of itself and any employee, understands and agrees that it shall not be entitled to any of the rights and privileges established for Owner's employees, including, but not limited to, the following: retirement benefits, medical insurance coverage, life insurance coverage, disability insurance coverage, severance pay benefits, paid vacation and sick pay, overtime pay, or any of them. Development Manager understands and agrees that Owner will not pay or withhold from the compensation paid to the Development Manager pursuant to this Agreement any sums customarily paid or withheld for or on behalf of employees for income tax, unemployment insurance, Social Security, worker's compensation or any other withholding tax, insurance or payment pursuant to any law or governmental regulation, and all such payments as may be required by law are the sole responsibility of Development Manager. Owner shall have no responsibility for any of Development Manager's debts, liabilities or other obligations, or for the intentional, reckless or negligent acts or omissions of Development Manager or Development Manager's employees or agents. D. Development Manager shall manage, review and monitor the construction activities on the Project with regard to compliance with all applicable laws, ordinances, orders, rules, regulations and requirements (hereinafter called "Laws") of all federal, state and municipal governments, courts, departments, commissions, boards and offices, any national or local Board of Fire Underwriters or Insurance Services Offices having jurisdiction 8 in any applicable state, or any political subdivision thereof, or any other body exercising functions similar to those of any of the foregoing, or any insurance carriers providing any insurance coverage for the Owner or the Project or any part thereof. Development Manager retains the sole and absolute discretion in the manner and means of the construction of the Project, subject to the approved plans. E. Development Manager shall assemble and retain all contracts, agreements and other records and data as may be necessary to complete the Project and to carry out Development Manager's functions hereunder. F. Development Manager shall implement the decisions of the Owner made in connection with the design, development and construction of the Project and any policies and procedures relating thereto, and shall perform the other services and responsibilities of Development Manager which are set forth in this Agreement. G. Development Manager shall make sure that, before payments are made to general contractor, subcontractors, materialmen, laborers or suppliers for work done on the Project or for services or materials supplied to the Project, such contractors, materialmen, laborers and suppliers execute a lien waiver with respect to all work being paid for by Owner. H. Development Manager shall manage compliance of all contracts entered into with respect to the Project and, in the event of a material default under any such contract, Development 9 Manager shall immediately notify Owner of such default and shall implement any appropriate enforcement action. 3. Construction. A. General Construction Covenants. In performing its duties hereunder (and without limitation upon the same), Development Manager shall: (1) manage, review, monitor and supervise all activities in connection with the Project so that: (a) construction and completion of the Project are in a good, workmanlike and substantial manner, free, to the actual knowledge of Development Manager after due investigation, from material defects; (b) there will be no encroachment onto adjoining land or onto any easements; and (c) the Project will have adequate water supply, storm and sanitary sewage facilities, telephone, electricity, fire protection, and means of ingress and egress to and from public highways or areas of shopping centers or similar developments and any other required public utilities for the Project as verified in writing by the supplier of such utilities in accordance with the approved plans. Development Manager shall promptly notify Owner of any problems with the foregoing items. B. Commencement and Completion Dates. Development Manager shall use its reasonable efforts to cause commencement and completion of the Project in accordance with the Project Schedule, subject to paragraph 19 of this Agreement and if the Project Schedule is not being adhered to, the Development Manager shall 10 take appropriate action to rectify the problem after consultation with Owner. C. Completion Evidence. Development Manager shall use its reasonable efforts to cause to be delivered the following items to the Owner on or before the date on which the Project shall be substantially completed (and shall otherwise deliver the same as soon thereafter as is possible): (1) a certificate from the Project Architect, addressed to the Owner and certifying substantial completion in accordance of a Project; (2) certificates of occupancy relating to a Project; (3) complete as-built plans and specifications for a Project showing all the utilities and improvements; (4) detailed schedules showing the percentage breakdown of the cost of construction to the components of the Project; and (5) evidence that (a) all necessary utility services for the Project are available and are fully operational, and (b) all work and materials incorporated into the Project have been fully paid for and mechanics lien waivers have been obtained from the general contractor, all subcontractors, materialmen, and suppliers who have performed work on or supplied materials or services to the Project. D. Costs of Construction. The fixed and variable costs and expenses of the acquisition of a Site and the construction and completion of the Projects shall be borne by the Owner (collectively the "Costs"). From time to time during the development and construction of the improvements for a Project, not more than one (1) time per month, Development Manager shall submit 11 to Owner a request for advance (the "Advance Request"), executed by both the General Contractor or Construction Manager and by the Project Architect, as updated from time to time in the form of Exhibit E, detailing the nature and amount of work and materials furnished to the date of the Advance Request, including identification of the parties furnishing such work and the materials, supporting invoices and mechanic's lien waivers from each such party. Upon receipt of the Advance Request, together with the support documentation set forth above, the Owner shall disburse to Development Manager the amounts set forth in the Advance Request within three (3) business days of receipt of the Advance Request. Development Manager shall not be deemed to be in default hereunder or to be responsible to the extent a default hereunder is caused by the Owner's failure to provide the funds to pay for the costs and expenses incurred in the construction and completion of the Project or to take any other action required of Development Manager under this Agreement. Owner shall indemnify and hold Development Manager harmless from any loss, damage, cost, or expense, including reasonable attorneys' fees, arising out of the failure to timely fund a Draw Request. E. Security for Costs of Construction. In order to secure Owner's obligations hereunder to pay the Costs, Owner shall: (1) Deliver to Development Manager a clean irrevocable letter of credit issued by a financial institution reasonably acceptable to Development Manager pursuant to the following terms: 12 (i) Owner shall tender to Development Manager a letter of credit (the "Letter of Credit") in an amount equal to 33 1/3% of the aggregate Costs for all approved Projects (excluding the cost of any land acquisition), but no less than Five Hundred Thousand Dollars ($500,000.00) at any time. The face amount of the Letter of Credit will be adjusted from time to time in accordance with the customary procedures of the issuer of the Letter of Credit to comply with the requirements of this subsection. (ii) In the event that Owner fails to timely pay an Advance Request, Development Manager may one (1) day after notice to Owner, draw upon the Letter of Credit from time to time in an amount necessary to fund an Advance Request. (iii) Owner agrees not to interfere in any way with payment to Development Manager of the proceeds of the Letter of Credit either prior to or following presentment by Development Manager of the appropriate documents to draw upon the Letter of Credit. Owner shall be liable to Development Manager for any loss suffered by Development Manager as a result of such interference, and Owner agrees that it may be enjoined from interfering or attempting to interfere, directly or indirectly, with Development Manager's negotiation of the letter of credit. 4. Warranties. Development Manager shall obtain customary warranties from all Contractors and Suppliers and shall cause all warranties and guaranties supplied by any party, including, but not limited to, the general contractor, subcontractors and manufacturers on those appliances and fixtures installed in or on 13 the Project which shall run in favor of and be enforceable by the Owner and Development Manager. 5. Accounts and Records. A. Development Manager, on behalf of the Owner, shall keep or cause to be kept by the contractors all construction books of account and other records for the Project as customarily maintained, including, but not limited to, records relating to the costs of construction and construction advances. All accounts and records relating to a Project, including all correspondence, shall be Owner's property and shall be delivered to the Owner upon demand without charge therefor or upon completion of a Project. B. Records and accounts shall be maintained on a basis reasonably determined by the Owner and shall be sufficient to permit the preparation therefrom of financial statements in accordance with generally accepted accounting principles and shall be adequate to provide the Owner with all financial information as may be needed by the Owner. C. All books and records prepared or maintained by Development Manager shall be kept and maintained at all times at the principal place of business of Development Manager and shall be available for and subject to audit, inspection and copying by the Owner, and any representative or auditor therefor or supervisory or regulatory authority during ordinary business hours. 6. Insurance. A. Development Manager shall cause to be obtained and maintained at all times until final completion of construction of 14 the Project, general public liability insurance, in an amount not less than $2,000,000.00 covering claims for personal injury, including, but not limited to, bodily injury, or property damage. Such insurance shall include contractual liability, broad form property damage and personal injury (including, but not limited to, bodily injury), covering the Development Manager's performance of all work or services at or from the Project. Such policy shall also include coverage thereunder, for bodily injury liability and property damage liability, and automobile insurance on any owned or non-owned, hired or leased automotive equipment used in furthering completion of any services or work. B. In addition to the insurance coverage for the Project and the Owner required to be maintained by Development Manager pursuant to subparagraph A, at all times during the term of this Agreement, Development Manager shall, at its own cost and expense, secure and maintain workers' compensation insurance and employer's liability insurance covering all persons employed by Development Manager in connection with the Project and with respect to whom death or bodily injury claims could be asserted in an amount not less than the minimum amount required to be carried as liability insurance pursuant to subparagraph A hereof. C. All insurance provided for in this paragraph shall be effected under valid, enforceable policies issued by insurers of recognized responsibility and shall be subject to the approval of the Owner. Development Manager shall furnish to the Owner, immediately upon execution hereof and thereafter prior to 15 expiration of each policy during the term of this Agreement, a certificate or certificates evidencing the above insurance, such certificates shall name each of the Additional Insureds, as hereinafter defined as additional insureds thereunder. Development Manager shall immediately notify the Owner in the event that any of its insurance carriers cancel or modify any of such insurance, and shall also notify (and shall cause such insurance policies to provide for notice to) the Owner at least thirty (30) days prior to changing insurance carriers or cancellation of any policy; provided that the notification hereinabove required shall not relieve Development Manager of its obligation to maintain continuously in effect the types and amounts of insurance specified above. 7. Owner Approvals. Notwithstanding any provisions of this Agreement, Development Manager shall not take any action, expend any sum, make any decision, give any consent, approval or authorization, enter into any agreement or incur any obligation with respect to any of the following matters unless and until the same have been approved by the Owner in writing: A. Any proposed material change in the plans and specifications of a Project therefor as previously approved by the Owner, or in the cost thereof, or any other change which would materially affect the design, cost, value or quality of the Project. B. Any expenditure or incurrence of any obligation which, when added to any other expenditures, exceeds the Project Budget. 16 8. Fees. A. Development Manager shall be paid as its compensation pursuant to this Agreement ("Development Manager's Fee") a fee of $25,000.00 per Project as follows: (1) The Development Manager's Fee shall be disbursed from time to time as part of an Advance Request; (2) Upon commencement of the Phase A work, Owner shall pay Development Manager a fee of $1,000.00; (3) Upon commencement of the Phase B work, Owner shall pay Development Manager a fee of $9,000. (4) Provided the Phase C activities are authorized, the balance of Development Manager's fee shall be paid in three (3) monthly installments of $5,000.00 each. 9. Duration and Termination. Unless sooner terminated as provided herein, this Agreement shall remain in effect until the final completion date of the Projects and payment of all sums to be paid under a Project Budget to third parties. 10. Independent Contractor. In performing its services hereunder, Development Manager shall be an independent contractor and not an employee, agent, or partner of the Owner. 11. Ownership of Information and Materials. Development Manager shall, upon completion of Development Manager's services or any sooner termination of this Agreement, deliver to the Owner all written data and information generated by or for Development Manager in connection with the Project or supplied to Development Manager by the Owner, or any of the Contractors and Suppliers, and 17 all drawings, plans, books, records, contracts, agreements and all other documents and writings in its possession relating to its services or the Project and the Owner shall have the right to use the same without further compensation to Development Manager. Such data and information and all such documents shall at all times be the property of the Owner. Development Manager agrees, for itself and all persons retained or employed by Development Manager in performing its services, to hold in confidence and not to use or disclose to others any confidential or proprietary information of the Owner heretofore or hereafter disclosed to Development Manager or any such persons designated as such by the Owner, including, but not limited to, any data, information, plans, programs, processes, equipment, costs, operations or customers which may come within the knowledge of Development Manager or any such persons in the performance of, or as a result of, its services. 12. Authority of Development Manager. Development Manager shall have no right or authority, express or implied, to commit or otherwise obligate the Owner in any manner whatsoever except to the extent specifically provided herein. Development Manager shall have no right or interest in the Project, nor any claim or lien with respect thereto, arising out of this Agreement or the performance of its services. 13. Licenses. Development Manager shall, at its own expense, qualify to do business and obtain and maintain such licenses as may be required for the performance by Development Manager of its services. Further, Development Manager shall verify that all of 18 the Contractors and Suppliers have obtained and maintain all licenses required for the performance of their duties on the Project, and Development Manager shall take appropriate action within its ability to cause such Contractors and Suppliers to obtain such licenses in the event such licenses are not held or maintained. 14. Survival; Further Instruments. All warranties, representations, covenants, obligations and agreements contained in this Agreement shall survive the completion of the Project and other transactions hereunder and any and all performances hereunder. All warranties and representations shall be effective regardless of any investigation made or which could have been made. Each party will, whenever and as often as it shall be requested to do so by the other, cause to be executed, acknowledged and delivered any and all such further instruments and documents as may be necessary or proper, in the reasonable opinion of the requesting party, in order to carry out the intent and purpose of this Agreement. 15. Miscellaneous. This Agreement contains the entire agreement between the parties respecting the matters herein set forth and supersedes all prior agreements between the parties hereto respecting such matters. Time is of the essence of each provision of this Agreement; however, if any action is required to be taken hereunder, or any event is required to occur hereunder, within a time period the last day of which is a non-business day (i.e., a Saturday, a Sunday or a national holiday), then such time 19 period shall be deemed to be extended to the immediately following business day. Paragraph headings shall not be used in construing this Agreement. If any party obtains a judgment against any other party by reason of breach of this Agreement, a reasonable attorneys' fee as fixed by the court shall be included in such judgment. Except as herein expressly provided, no remedy conferred upon a party in this Agreement is intended to be exclusive of any other remedy herein or by law provided or permitted, but each shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute. Except as herein expressly provided, no waiver by a party of any breach of this Agreement or of any warranty or representation hereunder by the other party shall be deemed to be a waiver of any other breach by such other party (whether preceding or succeeding and whether or not of the same or similar nature), and no acceptance of payment or performance by a party after any breach by any other party shall be deemed to be a waiver of any breach of this Agreement or of any representation or warranty hereunder by such other party whether or not the first party knows of such breach at the time it accepts such payment or performance. No failure or delay by a party shall operate as a waiver of default or modification of this Agreement or shall prevent the exercise of any right by the first party while the other party continues to be so in default. This Agreement shall be construed and enforced in accordance with the laws of the State of Colorado. 20 16. Successors and Assigns. Development Manager may not assign or transfer its rights or obligations under this Agreement without the prior written consent of the Owner (in which event such transferee shall assume in writing all of the transferor's obligations hereunder, but such transferor shall not be released from its obligations hereunder). No consent to such transfer or assignment shall be construed as a consent to any other transfer or assignment. No transfer or assignment in violation of the provisions hereof shall be enforceable. Subject to the foregoing, this Agreement and the terms and provisions hereof shall inure to the benefit of and be binding upon the successors and assigns of the parties. In the event the rights and obligations of a party shall be transferred and assigned as permitted hereunder or pursuant to the consent of the other party, such transferee and assignee will be substituted in place of such assignor in the documents, agreements and items herein provided, and it shall be entitled to the benefit of and may enforce the covenants, representations and warranties hereunder. 17. Notices. Any notice which a party is required or may desire to give the other shall be in writing and may be personally delivered or given by United States registered or certified mail, return receipt requested, addressed as follows: to Development Manager, Cyrus A. Hackstaff, III, Executive Vice- President, Ross Development Management Group, Inc., 730 17th Street, Suite 500, Denver, Colorado 80202; if to the Owner, Big O Development, Inc., 11755 E. Peakview, Englewood, Colorado 80111. Any notice so given 21 by United States mail shall be deemed to have been given on the third (3rd) day after the same is deposited in the United States mail as registered or certified matter, addressed as above provided, with postage thereon fully prepaid. Any such notice not given by registered or certified mail shall be deemed given upon receipt of the same by the party to whom the same is to be given. 18. Confidentiality. Development Manager agrees to keep all matters with respect to the Project, including the terms of this Agreement, strictly confidential and shall not disclose such matters except as required by law or except as necessary or appropriate for the development of the Project, and except to persons having a confidential relationship with Development Manager such as attorneys or accountants, without the prior written approval of Owner. Development Manager shall be entitled, however, to announce its appointment as the development manager for the Projects. 19. Force Majeure. Whenever there is, provided in this Agreement, a time limitation for performance by Development Manager or Owner of any obligation of such party under this Agreement, the time provided for shall be extended for as long as and to the extent that delay in compliance with such limitation is due to an act of God, governmental control or other factors beyond the reasonable control of such party. 22 20. Limited Liability. Except as to matters involving negligence or misconduct by Development Manager as to which no limit of liability shall apply, Development Manager's liability hereunder for damages, actual, punitive or consequential, arising from its acts or omissions under this Agreement, shall be limited to the amount payable hereunder plus costs and attorneys' fees incurred by Owner in pursuing such claim.(*) IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. DEVELOPMENT MANAGER: ROSS DEVELOPMENT MANAGEMENT GROUP, INC., a Colorado corporation /s/ Richard McClintock By:______________________________________ President Its:_____________________________________ OWNER: BIG O DEVELOPMENT, INC., a Colorado corporation /s/ Ronald Lautzenheiser By:______________________________________ Vice President Business Development Its:_____________________________________ BIG O TIRES, INC., a Nevada corporation /s/ John B. Adams By:______________________________________ Executive V. P. Its:_____________________________________ 23 (*) Notwithstanding the foregoing, with respect to claims against Development Manager related to claimed defects in construction or materials, Development Manager's liability shall be limited to the liability contained in the warranties of the general contractor and/or construction manager engaged by Development Manager for a Project, and only for the warranty period set forth in their respective agreements with Development Manager (collectively, "Contractor Agreements"). Any claim for such defects must be asserted against Development Manager within the period set forth in such Contractor Agreements and in no event later than three (3) years after such defect (whether latent or patent) arose. 23a EXHIBIT A --------- Sites/Project in Process Between Big O Tire and Ross Development Management Group, Inc. EXHIBIT B --------- [Project Design - Elevation - Appears Here] [Project Design - Floor Plan - Appears Here] [Project Design - Equipment Locations - Appears Here] EXHIBIT C --------- Project Target Budget Big O Tire and Ross Development Management Group, Inc. [Description of Fixed Costs made up of Hard and Soft Costs as well as variable Costs made up of Land Acquisition and site works and Big O Loan and Administrative Charges - Appears Here] EXHIBIT D --------- Authorization to Proceed Big O Tire and Ross Development Management Group, Inc. [Authorization sheet to Proceed as to Phases A, B and C - Appears here] Exhibit E Project and Construction Draw Format Big O Tire and Ross Development Management Group. Inc. [Construction Draws as to Project Phases A, B, and C Appears Here] APPLICATION AND CERTIFICATION FOR PAYMENT [Contractor's Application for Payment - Appears Here] EX-10.70 11 CONSULT. AGREEMENT EXHIBIT 10.70 HORST K. MEHLFELDT 207 LAKE POINTE DRIVE AKRON, OHIO 44333-1788 February 20, 1995 Mr. John B. Adams Big O Tires, Inc. 11755 East Peakview Avenue Englewood, CO 80111 Dear John, This confirms that the consulting agreement between Big O Tires, Inc. and myself dated September 22, 1994 is cancelled by mutual agreement effective February 15, 1995. Sincerely, /s/ Horst K. Mehlfeldt Horst K. Mehlfeldt HKM/ctd cc: Steve Cloward John Siipola EX-10.71 12 95 INCENTIVE BONUS PLAN Exhibit 10.71 1995 INCENTIVE BONUS PLAN FOR TOM STAKER - SENIOR V.P. OPERATIONS - CORPORATE -------------------------------------------------------------------------------- THIS AGREEMENT OUTLINES THE CRITERIA, GOALS AND REWARDS FOR YOUR 1995 INCENTIVE PLAN AS WELL AS THE TERMS AND CONDITIONS AS THEY APPLY TO YOUR PLAN. DEFINITIONS: ----------- THRESHOLD - The expected achievement goal for the criteria, at which and below no bonus will be paid. TARGET - The stretch goal at which 100% of the bonus will be paid out. MAXIMUM - The extraordinary goal at which 150% of the bonus will be paid. No additional bonus will be paid for achieving beyond this point. SECTION 1. EARNINGS PER SHARE This criterion is defined as the earnings per share for 1995 as reported in the Annual Report on Form 10-K.
WEIGHT THRESHOLD TARGET MAXIMUM ------ ----------- ------ ------- 25% 1994 Actual $ 1.16 $1.28 ANNUAL BONUS: $0 $13,490 150% of target
SECTION 2. RETURN ON ASSETS This criterion is defined as the ratio of the Company's total assets (tangible and intangible) divided by the Company's net income before taxes as reported in the 1995 Annual Report on Form 10-K.
WEIGHT THRESHOLD TARGET MAXIMUM ------ ----------- ------- ------- 30% 1994 Actual 6.66% 7.50% ANNUAL BONUS: $0 $16,188 150% of target
1 SECTION 3. SALES GROWTH This criterion is defined as the actual total sales dollar volume vs. the budget total sales dollar volume as reported in the 1995 Annual Report on Form 10-K.
WEIGHT THRESHOLD TARGET MAXIMUM ------ ----------- ------ ------- 25% 1994 Actual 1995 Budget Target + 5% ANNUAL BONUS: $0 $13,490 150% of target
SECTION 4. DISCRETIONARY This criterion is defined by the immediate supervisor based on performance issues he/she needs or wants to stress during 1995.
WEIGHT THRESHOLD TARGET MAXIMUM ------ ----------- ------- ------- 20% N/A ANNUAL BONUS: $0 $10,792 N/A ANNUAL TOTALS: 100% $0 $53,958 $75,541
SECTION 5. TERMS AND CONDITIONS 1. The criteria outlined in the above sections are considered singular and bonusable as specified. 2. This plan year shall commence January 1, 1995 and shall conclude December 31, 1995. 3. If your employment with the Company should terminate for any reason in 1995, no annual bonus or any part thereof shall be deemed to be earned and payable. You must be employed for the entire plan year. 4. Any annual bonus payable under this plan shall be paid by March 15, 1996. 2 5. The method of annual calculation is on a percentage basis using the difference between the threshold and target goals or target and maximum goals as follows: 1) For achievement between threshold and target - achievement divided by the sum of target goal minus threshold goal, times the target dollars, or; 2) For achievement above target - achievement divided by the sum of maximum goal minus target goals divided by 2 plus 1 times the target goal dollars.
Example: THRESHOLD TARGET MAXIMUM ----------- ------- ------- $12,000 $16,000 $18,000 ANNUAL BONUS: $0 $ 1,000 $ 1,500
Calculation of bonus between Target and Threshold with goal achievement of $13,535: (13,535 - 12,000) / (16,000 - 12,000) = .38375 x 1,000 = $383.75 bonus. Calculation of bonus between Target and Maximum with goal achievement of $16,393: (16,393 - 16,000) / (18,000 - 16,000) = .1965 / 2 = .09825 + 1 = 1.09825 x 1,000 = $1,098.25 bonus. AGREED TO: (Signature of) 1/28/95 ---------------------------------- ------- Steven P. Cloward Date President & CEO - Corporate BIG O TIRES, INC. AGREED TO: (Signature of) 1/24/95 ---------------------------------- ------- Tom Staker Date Senior V.P. Operations - Corporate BIG O TIRES, INC. Revised January 17, 1995 3 1995 INCENTIVE BONUS PLAN FOR KELLEY O'REILLY - V.P. MARKETING - CORPORATE -------------------------------------------------------------------------------- THIS AGREEMENT OUTLINES THE CRITERIA, GOALS AND REWARDS FOR YOUR 1995 INCENTIVE PLAN AS WELL AS THE TERMS AND CONDITIONS AS THEY APPLY TO YOUR PLAN. DEFINITIONS: THRESHOLD - The expected achievement goal for the criteria, at which and below no bonus will be paid. TARGET - The stretch goal at which 100% of the bonus will be paid out. MAXIMUM - The extraordinary goal at which 150% of the bonus will be paid. No additional bonus will be paid for achieving beyond this point. SECTION 1. EARNINGS PER SHARE This criterion is defined as the earnings per share for 1995 as reported in the Annual Report on Form 10-K.
WEIGHT THRESHOLD TARGET MAXIMUM ------ ----------- ------ ------- 20% 1994 Actual $ 1.16 $1.28 ANNUAL BONUS: $0 $5,547 150% of target
SECTION 2. SALES GROWTH This criterion is defined as the actual total sales dollar volume vs. the budget total sales dollar volume as reported in the 1995 Annual Report on Form 10-K.
WEIGHT THRESHOLD TARGET MAXIMUM ------ ----------- ------ ------- 40% 1994 Actual 1995 Budget Target + 5% ANNUAL BONUS: $0 $11,094 150% of target
4 SECTION 3. DEPARTMENT 12/42/45 PROFITABILITY This criterion is defined as the actual vs. budgeted net profit (loss) before taxes for the year from the above referenced department(s) as determined by Accounting and reported in your department's financial statement.
WEIGHT THRESHOLD TARGET MAXIMUM ------ ----------- ------ ------- 20% 1994 Actual 1995 Budget Target + 10% ANNUAL BONUS: $0 $5,547 150% of target
SECTION 4. DISCRETIONARY This criterion is defined by the immediate supervisor based on performance issues he/she needs or wants to stress during 1995.
WEIGHT THRESHOLD TARGET MAXIMUM ------ ----------- ------- ------- 20% N/A ANNUAL BONUS: $0 $ 5,547 N/A ANNUAL TOTALS: 100% $0 $27,735 $38,829
SECTION 5. TERMS AND CONDITIONS 1. The criteria outlined in the above sections are considered singular and bonusable as specified. 2. This plan year shall commence January 1, 1995 and shall conclude December 31, 1995. 3. If your employment with the Company should terminate for any reason in 1995, no annual bonus or any part thereof shall be deemed to be earned and payable. You must be employed for the entire plan year. 4. Any annual bonus payable under this plan shall be paid by March 15, 1996. 5 5. The method of annual calculation is on a percentage basis using the difference between the threshold and target goals or target and maximum goals as follows: 1) For achievement between threshold and target - achievement divided by the sum of target goal minus threshold goal, times the target dollars, or; 2) For achievement above target - achievement divided by the sum of maximum goal minus target goals divided by 2 plus 1 times the target goal dollars.
Example: THRESHOLD TARGET MAXIMUM ----------- ------- ------- $12,000 $16,000 $18,000 ANNUAL BONUS: $0 $ 1,000 $ 1,500
Calculation of bonus between Target and Threshold with goal achievement of $13,535: (13,535 - 12,000) / (16,000 - 12,000) = .38375 x 1,000 = $383.75 bonus. Calculation of bonus between Target and Maximum with goal achievement of $16,393: (16,393 - 16,000) / (18,000 - 16,000) = .1965 / 2 = .09825 + 1 = 1.09825 x 1,000 = $1,098.25 bonus. AGREED TO: (Signature of) 1/28/95 --------------------------- ------- Steven P. Cloward Date President & CEO - Corporate BIG O TIRES, INC. AGREED TO: (Signature of) 1/23/95 --------------------------- ------- Kelley O'Reilly Date V.P. Marketing - Corporate BIG O TIRES, INC. Revised January 17, 1995 6 1995 INCENTIVE BONUS PLAN FOR RON LAUTZENHEISER - V.P. BUSINESS DEVELOPMENT - CORPORATE ------------------------------------------------------------------------------ THIS AGREEMENT OUTLINES THE CRITERIA, GOALS AND REWARDS FOR YOUR 1995 INCENTIVE PLAN AS WELL AS THE TERMS AND CONDITIONS AS THEY APPLY TO YOUR PLAN. DEFINITIONS: ----------- THRESHOLD - The expected achievement goal for the criteria, at which and below no bonus will be paid. TARGET - The stretch goal at which 100% of the bonus will be paid out. MAXIMUM - The extraordinary goal at which 150% of the bonus will be paid. No additional bonus will be paid for achieving beyond this point. SECTION 1. NEW STORE OPENINGS - TOTAL --------- This criterion is defined as the 1995 new store openings that are open for business as of the 31st of December, 1995. New store openings may be adjusted at year end as they are conditional upon available financing as well as interest rates with the final determination made by the CEO.
WEIGHT THRESHOLD TARGET MAXIMUM ------ --------- ------ ------- 50% 21 36 42 ANNUAL BONUS: $0 $19,167 150% of target
SECTION 2. DEPARTMENT 22/62 PROFITABILITY --------- This criterion is defined as the actual vs. budgeted net profit (loss) before taxes for the year from the above referenced department(s) as determined by Accounting and reported in your department's financial statement. Budgeted net profit will be adjusted for lack of store growth by changing budgeted expense categories tied directly to new store growth (i.e., training expense, franchise fee income, etc.).
WEIGHT THRESHOLD TARGET MAXIMUM ------ --------- ------ ------- 15% 1994 Actual 1995 Budget Target + 10% ANNUAL BONUS: $0 $5,750 150% of target
1995 MBO - Ron Lautzenheiser Page 2 SECTION 3. FRANCHISE FEE INCOME --------- This criterion is defined as actual income derived from opening new franchises vs. 1995 budgeted income, as reported in your department's financial statements. It may be adjusted for stores not opened as new store openings are conditional upon available financing and interest rates. Any adjustment made will tie back to the adjustment, if any, used for calculations in Section 1.
WEIGHT THRESHOLD TARGET MAXIMUM ------ ----------- ----------- --------------- 15% 1994 Actual 1995 Budget Target + 10% ANNUAL BONUS: $0 $5,750 150% of target
SECTION 4. DISCRETIONARY --------- This criterion is defined by the immediate supervisor based on performance issues he/she needs or wants to stress during 1995.
WEIGHT THRESHOLD TARGET MAXIMUM ------ ----------- ----------- --------------- 20% N/A ANNUAL BONUS: $0 $7,667 N/A ANNUAL TOTALS: 100% $0 $38,333 $53,666
SECTION 5. TERMS AND CONDITIONS --------- 1. The criteria outlined in the above sections are considered singular and bonusable as specified. 2. This plan year shall commence January 1, 1995 and shall conclude December 31, 1995. 3. If your employment with the Company should terminate for any reason in 1995, no annual bonus or any part thereof shall be deemed to be earned and payable. You must be employed for the entire plan year. 4. Any annual bonus payable under this plan shall be paid by March 15, 1996. 1995 MBO - Ron Lautzenheiser Page 3 5. The method of annual calculation is on a percentage basis using the difference between the threshold and target goals or target and maximum goals as follows: 1) For achievement between threshold and target - achievement divided by the sum of target goal minus threshold goal, times the target dollars, or; 2) For achievement above target - achievement divided by the sum of maximum goal minus target goals divided by 2 plus 1 times the target goal dollars.
Example: THRESHOLD TARGET MAXIMUM --------- ------- ------- $12,000 $16,000 $18,000 ANNUAL BONUS: $0 $ 1,000 $ 1,500
Calculation of bonus between Target and Threshold with goal achievement of $13,535: (13,535 - 12,000) / (16,000 - 12,000) = .38375 x 1,000 = $383.75 bonus. Calculation of bonus between Target and Maximum with goal achievement of $16,393: (16,393 - 16,000) / (18,000 - 16,000) = .1965 / 2 = .09825 + 1 = 1.09825 x 1,000 = $1,098.25 bonus. AGREED TO: /s/ Steven P. Cloward 2/7/95 ---------------------- ----------------- Steven P. Cloward Date President & CEO - Corporate BIG O TIRES, INC. AGREED TO: /s/ Ron Lautzenheiser 2-7-95 ---------------------- ----------------- Ron Lautzenheiser Date V.P. Business Development - Corporate BIG O TIRES, INC. Revised February 7, 1995 1995 INCENTIVE BONUS PLAN FOR BRUCE WARE - REGIONAL V.P. - NORTHWEST REGION ------------------------------------------------------------------------------- THIS AGREEMENT OUTLINES THE CRITERIA, GOALS AND REWARDS FOR YOUR 1995 INCENTIVE PLAN AS WELL AS THE TERMS AND CONDITIONS AS THEY APPLY TO YOUR PLAN. DEFINITIONS: ----------- THRESHOLD - The expected achievement goal for the criteria, at which and below no bonus will be paid. TARGET - The stretch goal at which 100% of the bonus will be paid out. MAXIMUM - The extraordinary goal at which 150% of the bonus will be paid. No additional bonus will be paid for achieving beyond this point. SECTION 1. REGIONAL PROFITABILITY --------- This criterion is defined as the actual vs. budgeted profit before taxes and warranty expense for your region, including area support and management as reported in your region's consolidated, year-to-date income statement.
WEIGHT THRESHOLD TARGET MAXIMUM ------ --------- ------ ------- 40% 1994 Actual 1995 Budget Target + 10% ANNUAL BONUS: $0 $12,750 150% of target
SECTION 2. ACCOUNTS RECEIVABLE - % CURRENT - REGION --------- This criterion is defined as the monthly average for the current (30 days or less) A/R balance as reported on the Regional Aged Trial Balance report run by due date as a percent of the total monthly average A/R balance outstanding for the region excluding inter-warehouse receivables.
WEIGHT THRESHOLD TARGET MAXIMUM ------ --------- ------ ------- 20% 85% 90% 94% ANNUAL BONUS: $0 $6,375 150% of target
SECTION 3. RETURN ON ASSETS --------- This criterion is defined as the ratio of the Company's total assets (tangible and intangible) divided by the Company's net income before taxes as reported in the 1995 Annual Report on Form 10-K.
WEIGHT THRESHOLD TARGET MAXIMUM ------ --------- ------ ------- 20% 1994 Actual 6.66% 7.50% ANNUAL BONUS: $0 $6,375 150% of target
SECTION 4. DISCRETIONARY --------- This criterion is defined by the immediate supervisor based on performance issues he/she needs or wants to stress during 1995.
WEIGHT THRESHOLD TARGET MAXIMUM ------ --------- ------ ------- 20% N/A ANNUAL BONUS: $0 $6,375 N/A ANNUAL TOTALS:100% $0 $31,875 $44,625
SECTION 5. TERMS AND CONDITIONS --------- 1. The criteria outlined in the above sections are considered singular and bonusable as specified. 2. This plan year shall commence January 1, 1995 and shall conclude December 31, 1995. 3. If your employment with the Company should terminate for any reason in 1995, no annual bonus or any part thereof shall be deemed to be earned and payable. You must be employed for the entire plan year. 4. Any annual bonus payable under this plan shall be paid by March 15, 1996. 5. The method of annual calculation is on a percentage basis using the difference between the threshold and target goals or target and maximum goals as follows: 1) For achievement between threshold and target - achievement divided by the sum of target goal minus threshold goal, times the target dollars, or; 2) For achievement above target - achievement divided by the sum of maximum goal minus target goals divided by 2 plus 1 times the target goal dollars. Example:
THRESHOLD TARGET MAXIMUM --------- ------ ------- $12,000 $16,000 $18,000 ANNUAL BONUS: $0 $1,000 $1,500
Calculation of bonus between Target and Threshold with goal achievement of $13,535: (13,535 - 12,000) / (16,000 - 12,000) = .38375 x 1,000 = $383.75 bonus. Calculation of bonus between Target and Maximum with goal achievement of $16,393: (16,393 - 16,000) / (18,000 - 16,000) = .1965 / 2 = .09825 + 1 = 1.09825 x 1,000 = $1,098.25 bonus. AGREED TO: /s/ Tom Staker 2/16/95 ------------------------------ ------------ Tom Staker Date Senior V.P. Operations - Corporate BIG O TIRES, INC. AGREED TO: /s/ Bruce Ware 2/1/95 ------------------------------ ------------ Bruce Ware Date Regional V.P. - Northwest Region BIG O TIRES, INC. Revised March 27 1995 1995 INCENTIVE BONUS PLAN FOR GREG ROQUET - REGIONAL V.P. SOUTHWEST REGION -------------------------------------------------------------------------------- THIS AGREEMENT OUTLINES THE CRITERIA, GOALS AND REWARDS FOR YOUR 1995 INCENTIVE PLAN AS WELL AS THE TERMS AND CONDITIONS AS THEY APPLY TO YOUR PLAN. DEFINITIONS: THRESHOLD - The expected achievement goal for the criteria, at which and below no bonus will be paid. TARGET - The stretch goal at which 100% of the bonus will be paid out. MAXIMUM - The extraordinary goal at which 150% of the bonus will be paid. No additional bonus will be paid for achieving beyond this point. SECTION 1. REGIONAL PROFITABILITY This criterion is defined as the actual vs. budgeted profit before taxes and warranty expense for your region, including area support and management as reported in your region's consolidated, year-to-date income statement.
WEIGHT THRESHOLD TARGET MAXIMUM ------ ----------- ------- ------- 40% 1994 Actual 1995 Budget Target + 10% ANNUAL BONUS: $0 $6,917 150% of target
SECTION 2. ACCOUNTS RECEIVABLE - % CURRENT - REGION This criterion is defined as the monthly average for the current (30 days or less) A/R balance as reported on the Regional Aged Trial Balance report run by due date as a percent of the total monthly average A/R balance outstanding for the region excluding inter-warehouse receivables.
WEIGHT THRESHOLD TARGET MAXIMUM ------ ----------- ------- ------- 20% 85% 90% 94% ANNUAL BONUS: $0 $3,458 150% of target
13 SECTION 3. RETURN ON ASSETS This criterion is defined as the ratio of the Company's total assets (tangible and intangible) divided by the Company's net income before taxes as reported in the 1995 Annual Report on Form 10-K.
WEIGHT THRESHOLD TARGET MAXIMUM ------ ----------- ------- ------- 20% 1994 Actual 6.66% 7.50% ANNUAL BONUS: $0 $3,458 150% of target
SECTION 4. DISCRETIONARY This criterion is defined by the immediate supervisor based on performance issues he/she needs or wants to stress during 1995.
WEIGHT THRESHOLD TARGET MAXIMUM ------ ----------- ------- ------- 20% N/A ANNUAL BONUS: $0 $ 3,458 N/A ANNUAL TOTALS: 100% $0 $17,292 $24,209
SECTION 5. TERMS AND CONDITIONS 1. The criteria outlined in the above sections are considered singular and bonusable as specified. 2. This plan year shall commence January 1, 1995 and shall conclude December 31, 1995. 3. If your employment with the Company should terminate for any reason in 1995, no annual bonus or any part thereof shall be deemed to be earned and payable. You must be employed for the entire plan year. 4. Any annual bonus payable under this plan shall be paid by March 15, 1996. 14 5. The method of annual calculation is on a percentage basis using the difference between the threshold and target goals or target and maximum goals as follows: 1) For achievement between threshold and target - achievement divided by the sum of target goal minus threshold goal, times the target dollars, or; 2) For achievement above target - achievement divided by the sum of maximum goal minus target goals divided by 2 plus 1 times the target goal dollars.
Example: THRESHOLD TARGET MAXIMUM ----------- ------- ------- $12,000 $16,000 $18,000 ANNUAL BONUS: $0 $ 1,000 $ 1,500
Calculation of bonus between Target and Threshold with goal achievement of $13,535: (13,535 - 12,000) / (16,000 - 12,000) = .38375 x 1,000 = $383.75 bonus. Calculation of bonus between Target and Maximum with goal achievement of $16,393: (16,393 - 16,000) / (18,000 - 16,000) = .1965 / 2 = .09825 + 1 = 1.09825 x 1,000 = $1,098.25 bonus. AGREED TO: (Signature of) 2/20/95 ---------------------------------- ------- Tom Staker Date Senior V.P. Operations - Corporate BIG O TIRES, INC. AGREED TO: (Signature of) 1-31-95 ---------------------------------- ------- Greg Roquet Date Regional V.P. - Southwest Region BIG O TIRES, INC. Revised January 17, 1995 15 1995 INCENTIVE BONUS PLAN FOR GREG ROQUET - REGIONAL V.P. - WEST CENTRAL REGION -------------------------------------------------------------------------------- THIS AGREEMENT OUTLINES THE CRITERIA, GOALS AND REWARDS FOR YOUR 1995 INCENTIVE PLAN AS WELL AS THE TERMS AND CONDITIONS AS THEY APPLY TO YOUR PLAN. DEFINITIONS: THRESHOLD - The expected achievement goal for the criteria, at which and below no bonus will be paid. TARGET - The stretch goal at which 100% of the bonus will be paid out. MAXIMUM - The extraordinary goal at which 150% of the bonus will be paid. No additional bonus will be paid for achieving beyond this point. SECTION 1. REGIONAL PROFITABILITY This criterion is defined as the actual vs. budgeted profit before taxes and warranty expense for your region, including area support and management as reported in your region's consolidated, year-to-date income statement.
WEIGHT THRESHOLD TARGET MAXIMUM ------ ----------- ------- ------- 40% 1994 Actual 1995 Budget Target + 10% ANNUAL BONUS: $0 $6,917 150% of target
SECTION 2. ACCOUNTS RECEIVABLE - % CURRENT - REGION This criterion is defined as the monthly average for the current (30 days or less) A/R balance as reported on the Regional Aged Trial Balance report run by due date as a percent of the total monthly average A/R balance outstanding for the region excluding inter-warehouse receivables.
WEIGHT THRESHOLD TARGET MAXIMUM ------ ----------- ------ ------- 20% 85% 90% 94% ANNUAL BONUS: $0 $3,458 150% of target
16 1995 MBO - Greg Roquet, West Central Region Page 2 SECTION 3. RETURN ON ASSETS This criterion is defined as the ratio of the Company's total assets (tangible and intangible) divided by the Company's net income before taxes as reported in the 1995 Annual Report on Form 10-K.
WEIGHT THRESHOLD TARGET MAXIMUM ------ ----------- ------ ------- 20% 1994 Actual 6.66% 7.50% ANNUAL BONUS: $0 $3,458 150% of target
SECTION 4. DISCRETIONARY This criterion is defined by the immediate supervisor based on performance issues he/she needs or wants to stress during 1995.
WEIGHT THRESHOLD TARGET MAXIMUM ------ ----------- ------ ------- 20% N/A ANNUAL BONUS: $0 $ 3,458 N/A ANNUAL TOTALS: 100% $0 $17,292 $24,209
SECTION 5. TERMS AND CONDITIONS 1. The criteria outlined in the above sections are considered singular and bonusable as specified. 2. This plan year shall commence January 1, 1995 and shall conclude December 31, 1995. 3. If your employment with the Company should terminate for any reason in 1995, no annual bonus or any part thereof shall be deemed to be earned and payable. You must be employed for the entire plan year. 4. Any annual bonus payable under this plan shall be paid by March 15, 1996. 17 1995 MBO - Greg Roquet, West Central Region Page 3 5. The method of annual calculation is on a percentage basis using the difference between the threshold and target goals or target and maximum goals as follows: 1) For achievement between threshold and target - achievement divided by the sum of target goal minus threshold goal, times the target dollars, or; 2) For achievement above target - achievement divided by the sum of maximum goal minus target goals divided by 2 plus 1 times the target goal dollars.
Example: THRESHOLD TARGET MAXIMUM ----------- ------- ------- $12,000 $16,000 $18,000 ANNUAL BONUS: $0 $ 1,000 $ 1,500
Calculation of bonus between Target and Threshold with goal achievement of $13,535: (13,535 - 12,000) / (16,000 - 12,000) = .38375 x 1,000 = $383.75 bonus. Calculation of bonus between Target and Maximum with goal achievement of $16,393: (16,393 - 16,000) / (18,000 - 16,000) = .1965 / 2 = .09825 + 1 = 1.09825 x 1,000 = $1,098.25 bonus. AGREED TO: (Signature of) 2/20/95 ----------------------------------- ------- Tom Staker Date Senior V.P. Operations - Corporate BIG O TIRES, INC. AGREED TO: (Signature of) 2-1-95 ----------------------------------- ------ Greg Roquet Date Regional V.P. - West Central Region BIG O TIRES, INC. Revised January 17, 1995 18 1995 INCENTIVE BONUS PLAN FOR ALLEN JONES - REGIONAL V.P. SOUTHEAST REGION -------------------------------------------------------------------------------- THIS AGREEMENT OUTLINES THE CRITERIA, GOALS AND REWARDS FOR YOUR 1995 INCENTIVE PLAN AS WELL AS THE TERMS AND CONDITIONS AS THEY APPLY TO YOUR PLAN. DEFINITIONS: ----------- THRESHOLD - The expected achievement goal for the criteria, at which and below no bonus will be paid. TARGET - The stretch goal at which 100% of the bonus will be paid out. MAXIMUM - The extraordinary goal at which 150% of the bonus will be paid. No additional bonus will be paid for achieving beyond this point. SECTION 1. REGIONAL PROFITABILITY --------- This criterion is defined as the actual vs. budgeted profit before taxes and warranty expense for your region, including area support and management as reported in your region's consolidated, year-to-date income statement.
WEIGHT THRESHOLD TARGET MAXIMUM ------ ----------- ----------- --------------- 40% 1994 Actual 1995 Budget Target + 10% ANNUAL BONUS: $0 $12,417 150% of target
SECTION 2. ACCOUNTS RECEIVABLE - % CURRENT - REGION --------- This criterion is defined as the monthly average for the current (30 days or less) A/R balance as reported on the Regional Aged Trial Balance report run by due date as a percent of the total monthly average A/R balance outstanding for the region excluding inter-warehouse receivables.
WEIGHT THRESHOLD TARGET MAXIMUM ------ --------- ------ -------------- 20% 85% 90% 94% ANNUAL BONUS: $0 $6,208 150% of target
1995 MBO - Allen Jones Page 2 SECTION 3. RETURN ON ASSETS --------- This criterion is defined as the ratio of the Company's total assets (tangible and intangible) divided by the Company's net income before taxes as reported in the 1995 Annual Report on Form 10-K.
WEIGHT THRESHOLD TARGET MAXIMUM ------ ----------- ------- --------------- 20% 1994 Actual 6.66% 7.50% ANNUAL BONUS: $0 $6,208 150% of target
SECTION 4. DISCRETIONARY --------- This criterion is defined by the immediate supervisor based on performance issues he/she needs or wants to stress during 1995. WEIGHT THRESHOLD TARGET MAXIMUM ------ --------- -------- --------- 20% N/A ANNUAL BONUS: $0 $6,208 N/A ANNUAL TOTALS:100% $0 $31,042 $43,459 SECTION 5. TERMS AND CONDITIONS --------- 1. The criteria outlined in the above sections are considered singular and bonusable as specified. 2. This plan year shall commence January 1, 1995 and shall conclude December 31, 1995. 3. If your employment with the Company should terminate for any reason in 1995, no annual bonus or any part thereof shall be deemed to be earned and payable. You must be employed for the entire plan year. 4. Any annual bonus payable under this plan shall be paid by March 15, 1996. 1995 MBO - Bruce Ware Page 3 5. The method of annual calculation is on a percentage basis using the difference between the threshold and target goals or target and maximum goals as follows: 1) For achievement between threshold and target - achievement divided by the sum of target goal minus threshold goal, times the target dollars, or; 2) For achievement above target - achievement divided by the sum of maximum goal minus target goals divided by 2 plus 1 times the target goal dollars.
Example: THRESHOLD TARGET MAXIMUM --------- ------- ------- $12,000 $16,000 $18,000 ANNUAL BONUS: $ 0 $ 1,000 $ 1,500
Calculation of bonus between Target and Threshold with goal achievement of $13,535: (13,535 - 12,000) / (16,000 - 12,000) = .38375 x 1,000 = $383.75 bonus. Calculation of bonus between Target and Maximum with goal achievement of $16,393: (16,393 - 16,000) / (18,000 - 16,000) = .1965 / 2 = .09825 + 1 = 1.09825 x 1,000 = $1,098.25 bonus. AGREED TO: /s/ Tom Staker 2/16/95 --------------------------------- ---------- Tom Staker Date Senior V.P. Operations - Corporate BIG O TIRES, INC. AGREED TO: /s/ Bruce Ware 2/1/95 --------------------------------- --------- Bruce Ware Date Regional V.P. - Southeast Region BIG O TIRES, INC. Revised March 27 1995 1995 INCENTIVE BONUS PLAN FOR PHIL TEIGEN - GENERAL COUNSEL - CORPORATE -------------------------------------------------------------------------------- THIS AGREEMENT OUTLINES THE CRITERIA, GOALS AND REWARDS FOR YOUR 1995 INCENTIVE PLAN AS WELL AS THE TERMS AND CONDITIONS AS THEY APPLY TO YOUR PLAN. DEFINITIONS: ----------- THRESHOLD - The expected achievement goal for the criteria, at which and below no bonus will be paid. TARGET - The stretch goal at which 100% of the bonus will be paid out. MAXIMUM - The extraordinary goal at which 150% of the bonus will be paid. No additional bonus will be paid for achieving beyond this point. SECTION 1. EARNINGS PER SHARE --------- This criterion is defined as the earnings per share for 1995 as reported in the Annual Report on Form 10-K.
WEIGHT THRESHOLD TARGET MAXIMUM ------ --------- ------ ------- 50% 1994 Actual $1.16 $1.28 ANNUAL BONUS: $0 $8,897 150% of target
SECTION 2. LEGAL EXPENSES BUDGET --------- This criterion is defined as the actual total sales dollar volume vs. the budget total sales dollar volume as reported in the 1995 Annual Report on Form 10-K.
WEIGHT THRESHOLD TARGET MAXIMUM ------ --------- ------ ------- 30% 1994 Actual 1995 Budget Target + 10% ANNUAL BONUS: $0 $5,338 150% of target
SECTION 3. DISCRETIONARY --------- This criterion is defined by the immediate supervisor based on performance issues he/she needs or wants to stress during 1995. WEIGHT THRESHOLD TARGET MAXIMUM ------ --------- ------ ------- [S] [C] [C] [C] 20% N/A ANNUAL BONUS: $0 $3,559 N/A ANNUAL TOTALS: 100% $0 $17,794 $24,912 SECTION 4. TERMS AND CONDITIONS --------- 1. The criteria outlined in the above sections are considered singular and bonusable as specified. 2. This plan year shall commence January 1, 1995 and shall conclude December 31, 1995. 3. If your employment with the Company should terminate for any reason in 1995, no annual bonus or any part thereof shall be deemed to be earned and payable. You must be employed for the entire plan year. 4. Any annual bonus payable under this plan shall be paid by March 15, 1996. 5. The method of annual calculation is on a percentage basis using the difference between the threshold and target goals or target and maximum goals as follows: 1) For achievement between threshold and target - achievement divided by the sum of target goal minus threshold goal, times the target dollars, or; 2) For achievement above target - achievement divided by the sum of maximum goal minus target goals divided by 2 plus 1 times the target goal dollars.
Example: THRESHOLD TARGET MAXIMUM --------- ------- ------- $12,000 $16,000 $18,000 ANNUAL BONUS: $0 $ 1,000 $ 1,500
Calculation of bonus between Target and Threshold with goal achievement of $13,535: (13,535 - 12,000) / (16,000 - 12,000) = .38375 x 1,000 = $383.75 bonus. Calculation of bonus between Target and Maximum with goal achievement of $16,393: (16,393 - 16,000) / (18,000 - 16,000) = .1965 / 2 = .09825 + 1 = 1.09825 x 1,000 = $1,098.25 bonus. AGREED TO: [SIGNATURE OF JOHN B. ADAMS] 3/1/95 ------------------------------- ------------- John B. Adams Date Executive V. P. and CFO Corporate BIG O TIRES, INC. AGREED TO: [SIGNATURE OF PHIL TEIGEN] 3/1/95 ------------------------------- ------------- Phil Teigen Date General Counsel - Corporate BIG O TIRES, INC. Revised February 7, 1995 1995 INCENTIVE BONUS PLAN FOR DENNIS FRYER - REGIONAL V.P. - CENTRAL REGION -------------------------------------------------------------------------------- THIS AGREEMENT OUTLINES THE CRITERIA, GOALS AND REWARDS FOR YOUR 1995 INCENTIVE PLAN AS WELL AS THE TERMS AND CONDITIONS AS THEY APPLY TO YOUR PLAN. DEFINITIONS: THRESHOLD - The expected achievement goal for the criteria, at which and below no bonus will be paid. TARGET - The stretch goal at which 100% of the bonus will be paid out. MAXIMUM - The extraordinary goal at which 150% of the bonus will be paid. No additional bonus will be paid for achieving beyond this point. SECTION 1. REGIONAL PROFITABILITY This criterion is defined as the actual vs. budgeted profit before taxes and warranty expense for your region, including area support and management as reported in your region's consolidated, year-to-date income statement.
WEIGHT THRESHOLD TARGET MAXIMUM ------ ----------- ------ ------- 40% 1994 Actual 1995 Budget Target + 10% ANNUAL BONUS: $0 $12,500 150% of target
SECTION 2. ACCOUNTS RECEIVABLE - % CURRENT - REGION This criterion is defined as the monthly average for the current (30 days or less) A/R balance as reported on the Regional Aged Trial Balance report run by due date as a percent of the total monthly average A/R balance outstanding for the region excluding inter-warehouse receivables.
WEIGHT THRESHOLD TARGET MAXIMUM ------ ----------- ------ ------- 20% 85% 90% 94% ANNUAL BONUS: $0 $6,250 150% of target
25 SECTION 3. RETURN ON ASSETS This criterion is defined as the ratio of the Company's total assets (tangible and intangible) divided by the Company's net income before taxes as reported in the 1995 Annual Report on Form 10-K.
WEIGHT THRESHOLD TARGET MAXIMUM ------ ----------- ------ ------- 20% 1994 Actual 6.66% 7.50% ANNUAL BONUS: $0 $6,250 150% of target
SECTION 4. DISCRETIONARY This criterion is defined by the immediate supervisor based on performance issues he/she needs or wants to stress during 1995.
WEIGHT THRESHOLD TARGET MAXIMUM ------ ----------- ------ ------- 20% N/A ANNUAL BONUS: $0 $ 6,250 N/A ANNUAL TOTALS: 100% $0 $31,250 $43,750
SECTION 5. TERMS AND CONDITIONS 1. The criteria outlined in the above sections are considered singular and bonusable as specified. 2. This plan year shall commence January 1, 1995 and shall conclude December 31, 1995. 3. If your employment with the Company should terminate for any reason in 1995, no annual bonus or any part thereof shall be deemed to be earned and payable. You must be employed for the entire plan year. 4. Any annual bonus payable under this plan shall be paid by March 15, 1996. 26 5. The method of annual calculation is on a percentage basis using the difference between the threshold and target goals or target and maximum goals as follows: 1) For achievement between threshold and target - achievement divided by the sum of target goal minus threshold goal, times the target dollars, or; 2) For achievement above target - achievement divided by the sum of maximum goal minus target goals divided by 2 plus 1 times the target goal dollars.
Example: THRESHOLD TARGET MAXIMUM ----------- ------- ------- $12,000 $16,000 $18,000 ANNUAL BONUS: $0 $ 1,000 $ 1,500
Calculation of bonus between Target and Threshold with goal achievement of $13,535: (13,535 - 12,000) / (16,000 - 12,000) = .38375 x 1,000 = $383.75 bonus. Calculation of bonus between Target and Maximum with goal achievement of $16,393: (16,393 - 16,000) / (18,000 - 16,000) = .1965 / 2 = .09825 + 1 = 1.09825 x 1,000 = $1,098.25 bonus. AGREED TO: ---------------------------------- ------- Tom Staker Date Senior V.P. Operations - Corporate BIG O TIRES, INC. AGREED TO: /s/ Dennis Fryer 2/22/95 ---------------------------------- ------- Dennis Fryer Date Regional V.P. - Central Region BIG O TIRES, INC. Revised January 17, 1995 27 EXHIBIT 10.71 1995 INCENTIVE BONUS PLAN FOR JOHN ADAMS - EXECUTIVE V.P. & CFO - CORPORATE -------------------------------------------------------------------------------- THIS AGREEMENT OUTLINES THE CRITERIA, GOALS AND REWARDS FOR YOUR 1995 INCENTIVE PLAN AS WELL AS THE TERMS AND CONDITIONS AS THEY APPLY TO YOUR PLAN. DEFINITIONS: THRESHOLD - The expected achievement goal for the criteria, at which and below no bonus will be paid. TARGET - The stretch goal at which 100% of the bonus will be paid out. MAXIMUM - The extraordinary goal at which 150% of the bonus will be paid. No additional bonus will be paid for achieving beyond this point. SECTION 1. EARNINGS PER SHARE This criterion is defined as the earnings per share for 1995 as reported in the Annual Report on Form 10-K.
WEIGHT THRESHOLD TARGET MAXIMUM ------ ----------- ------ ------- 30% 1994 Actual $1.16 $1.28 ANNUAL BONUS: $0 $22,575 150% of target
SECTION 2. RETURN ON ASSETS This criterion is defined as the ratio of the Company's total assets (tangible and intangible) divided by the Company's net income before taxes as reported in the 1995 Annual Report on Form 10-K.
WEIGHT THRESHOLD TARGET MAXIMUM ------ ----------- ------ ------- 30% 1994 Actual 6.66% 7.50% ANNUAL BONUS: $0 $22,575 150% of target
28 SECTION 3. SALES GROWTH This criterion is defined as the actual total sales dollar volume vs. the budget total sales dollar volume as reported in the 1995 Annual Report on Form 10-K.
WEIGHT THRESHOLD TARGET MAXIMUM ------ ----------- ------ ------- 20% 1994 Actual 1995 Budget Target + 5% ANNUAL BONUS: $0 $15,050 150% of target
SECTION 4. DISCRETIONARY This criterion is defined by the immediate supervisor based on performance issues he/she needs or wants to stress during 1995.
WEIGHT THRESHOLD TARGET MAXIMUM ------ ----------- ------ ------- 20% N/A ANNUAL BONUS: $0 $15,050 N/A ANNUAL TOTALS: 100% $0 $75,250 $105,350
SECTION 5. TERMS AND CONDITIONS 1. The criteria outlined in the above sections are considered singular and bonusable as specified. 2. This plan year shall commence January 1, 1995 and shall conclude December 31, 1995. 3. If your employment with the Company should terminate for any reason in 1995, no annual bonus or any part thereof shall be deemed to be earned and payable. You must be employed for the entire plan year. 4. Any annual bonus payable under this plan shall be paid by March 15, 1996. 29 5. The method of annual calculation is on a percentage basis using the difference between the threshold and target goals or target and maximum goals as follows: 1) For achievement between threshold and target - achievement divided by the sum of target goal minus threshold goal, times the target dollars, or; 2) For achievement above target - achievement divided by the sum of maximum goal minus target goals divided by 2 plus 1 times the target goal dollars.
THRESHOLD TARGET MAXIMUM ----------- ------- ------- $12,000 $16,000 $18,000 ANNUAL BONUS: $0 $ 1,000 $ 1,500
Calculation of bonus between Target and Threshold with goal achievement of $13,535: (13,535 - 12,000) / (16,000 - 12,000) = .38375 x 1,000 = $383.75 bonus. Calculation of bonus between Target and Maximum with goal achievement of $16,393: (16,393 - 16,000) / (18,000 - 16,000) = .1965 / 2 = .09825 + 1 = 1.09825 x 1,000 = $1,098.25 bonus. AGREED TO: (Signature of) 1/30/95 -------------------------------- ------- Steven P. Cloward Date President & CEO - Corporate BIG O TIRES, INC. AGREED TO: (Signature of) 1/30/95 -------------------------------- ------- John Adams Date Executive V.P. & CFO - Corporate BIG O TIRES, INC. Revised March 27, 1995 30 EX-10.72 13 LOAN AGREEMENT BIG O EXHIBIT 10.72 [LOGO OF AT&T Capital Corporation] Suite 450 5613 D.T.C. Parkway Englewood, CO 80111 303 741-4144 FAX 303 220-8336 February 16, 1994 John Adams Executive Vice President Big O Tires, Inc 11755 E. Peakview Ave. Englewood, CO 80111 Dear Mr. Adams: AT&T Commercial Finance Corporation ("Lender") is pleased to confirm that we have established a line of credit not to exceed $9,750,000.00, including amounts previously funded, under the terms and conditions described below. This commitment supersedes the previous $5,000,000 line of credit described in the letter dated July 22, 1992. All projects unfunded or without individual commitment will be subject to the terms and conditions of this agreement. A. BASIC CREDIT TERMS BORROWER: Either Big O Development Inc. or a real estate joint venture partnership consisting of the real estate developer (identified by Big O Tires, Inc), and Big O Development, Inc. GUARANTOR: All stockholder(s)/partner(s) of the real estate developer, including the spouse(s) of the stockholder(s)/partner(s). Big O Development, Inc. Big O Tires, Inc. AMOUNT: Lender to advance 86% of the lower of MAI appraised value or invoiced "hard costs" (see Schedule A attached for definition of "hard costs") on land and building, not to exceed $600,000.00 on any one location. Lender will require invoices of hard costs, copies of construction contracts and draws, copies of land purchase contracts and an acceptable MAI appraisal certified to the Lender and conforming to the terms and conditions outlined in the attached Exhibit B. TERM: Land and building: 10 year note, 20 year amortization. (At the 1Oth year, Lender shall consider refinancing the remaining principal balance for either Borrower, or the franchisee, should the property have been sold to the franchisee. However, said refinancing shall be at the sole and absolute discretion of Lender.) Big O Tires, Inc. February 16, 1994 Page 2 PURPOSE: Loan proceeds will be used for the development of new retail locations for Big 0 Tires, Inc. INTEREST RATE: The interest rate on the unpaid balance shall be: Option 1 - Fixed rate of 395 basis points above the published average yield on U.S. Treasury Notes maturing five (5) years from the date of closing. Option 2 - Floating rate of the Prime Rate plus 2.25% adjusted monthly. The "Prime Rate" is defined as the Prime Rate publicly announced as being charged by Chase Manhattan Bank, N.A., New York, New York, from time to time (which may not necessarily be the lowest rate charged). Payments will be fixed at the time of funding based on the Prime Rate plus 2.50. Based on this payment, an amortization schedule outlining the remaining principal balance at each quarter end will be developed. Should the remaining principal balance at any quarter end be greater than the amount stated in the amortization schedule, Borrower will be responsible for an additional payment equal to the amount necessary to reduce the principal balance to the predetermined amount as stated in the amortization schedule. CLOSING FEE: A non-refundable closing fee of 1.5% of the loan amount shall be required at the closing of each transaction. Funds held by Lender as the Commitment Fee shall be utilized as the Closing Fee. RATE REVIEW: At the 36th month, Borrower shall have four options: 1) To fix at a rate of 395 basis points above the then published average yield on U.S. Treasury Notes maturing five (5) years from that date. 2) To negotiate a new rate of interest, mutually agreeable to both Borrower and Lender; or 3) If no new rate can be agreed upon by both parties, Borrower may pay the account(s) in full without prepayment penalty; or 4) The rate will automatically convert to the floating rate of the Prime Rate plus 2.25%. The "Prime Rate" is defined as the Prime Rate publicly announced as being charged by Chase Manhattan Bank, N.A., New York, New York, from time to time (which may not necessarily be the lowest rate charged). Based on the payment at the time of funding, an amortization schedule outlining the remaining principal balance at each quarter end will have been developed. Should the remaining principal balance at any quarter Big O Tires, Inc. February 16, 1994 Page 3 end be greater than the amount stated in the amortization schedule, Borrower will be responsible for an additional payment equal to the amount necessary to reduce the principal balance to the predetermined amount as stated in the amortization schedule. At the 72nd month, Borrower shall have three options: 1) To negotiate a new rate of interest, mutually agreeable to both Borrower and Lender; or 2) If no new rate can be agreed upon by both parties, Borrower may pay the account(s) in full without prepayment penalty; or 3) The rate will automatically convert to the floating rate of the Prime Rate plus 2.25%. The "Prime Rate" is defined as the Prime Rate publicly announced as being charged by Chase Manhattan Bank, N.A., New York, New York, from time to time (which may not necessarily be the lowest rate charged). Based on the payment at the time of funding, an amortization schedule outlining the remaining principal balance at each quarter end will have been developed. Should the remaining principal balance at any quarter end be greater than the amount stated in the amortization schedule, Borrower will be responsible for an additional payment equal to the amount necessary to reduce the principal balance to the predetermined amount as stated in the amortization schedule. PREPAYMENT PENALTIES: Prepayment penalties will be assessed on the unpaid principal balance as follows: % of Principal Years of Contract Balance ----------------- --------------- Year 1 3% Year 2 2% Year 3 1% Year 4-10 0% LATE CHARGE AND DEFAULT INTEREST: A late payment charge of 5% of the payment amount will be assessed on all payments received more than 10 days after its scheduled due date. In the event of default, the interest rate charged shall increase to a rate 400 basis points over the rate otherwise payable. Big O Tires, Inc. February 16, 1994 Page 4 B. COLLATERAL REQUIREMENTS COLLATERAL: Transaction to be secured by a first lien position in favor of Lender on land and building of each Big O retail store financed by Lender. MAI APPRAISAL: Lender will require that the MAI appraisal be completed by an appraiser satisfactory to Lender. The appraisal must be certified to Lender and conform to the terms and conditions outlined in the "appraisal engagement letter" (copy attached as part of Exhibit B). JUNIOR LIEN: No liens or encumbrances on the collateral will be permitted except those in favor of Lender, or in favor of Big O Tires Inc.'s principal lender, where such liens are required pursuant to the company's credit agreement with such lender. ENVIRONMENTAL REQUIREMENTS: Federal and State Environmental Requirements: --------------------------------------------- A) Borrower will complete an Environmental Questionnaire regarding the property being pledged as collateral, in form and substance satisfactory to Lender. Based on the information provided by said Environmental Questionnaire, Lender may 1) require a 50 year chain of title report, satisfactory to Lender and/or 2) require Borrower to have an Environmental Survey completed on the proposed property, in form and substance satisfactory to Lender, at Lender's sole discretion. Based on the information provided in the Environmental Survey, Lender may require further action or information on the property. B) Borrower will execute an Environmental Warranty and Indemnification Agreement, in form and substance satisfactory to Lender. C) Borrower will meet or exceed all EPA requirements or regulations that are in effect and will meet or exceed all applicable future EPA requirements or regulations as they become effective. D) Borrower will promptly take whatever action is necessary when they have knowledge that an environmental accident has occurred including the financial responsibility for the clean up process. C. FINANCIAL STATEMENTS FINANCIAL: Annual financial statements and tax returns of Borrower, shall be furnished to Lender within 120 calendar days of the fiscal year-end period, Interim semi-annual financial statements shall be provided to Lender within 30 calendar days of the 6 month fiscal period. OTHER FINANCIAL: In addition to the financial statements required in the section "Financial" above, annual income tax returns and personal financial statements of Guarantors shall be furnished to Lender within 120 calendar days of the Big O Tires, Inc. February 16, 1994 Page 5 end of each tax fiscal year-end. Should Guarantor(s) provide Lender with certified annual financial statements, annual income tax returns shall not be required. D. CONDITIONS TO CLOSING DOCUMENTATION: Documentation acceptable to Lender, at Lender's sole discretion, will be required, including but not limited to Promissory Notes, Guarantees, Security Agreements, Deed of Trust/Mortgage, Assignment of Leases and Rents, UCC-1 Filings, and releases of prior liens. FRANCHISE AGREEMENT: A) This commitment is issued expressly contingent upon Big O Tires, Inc. having issued a franchise agreement and lease on the proposed location to the franchisee who is to operate the proposed location, with remaining terms of no less than 9 1/2 years on both the franchise agreement and the lease. B) Should Borrower desire to sell the property at any time during the term of the proposed loan, Lender shall consider the assignment of Lender's note to the prospective purchaser. However, said assignment shall be to a "qualified" buyer, with such determination to be at the sole and absolute discretion of Lender. In addition, any assignment of the note shall require that Borrower and all Guarantors remain as obligors/guarantors on the loan. FUNDING: Funding will take place upon Lenders confirmation of the delivery and installation of the equipment, Lender's receipt of the final Certificate of Occupancy, and compliance with all other terms and conditions of the commitment. COSTS: Borrower shall reimburse Lender for all "out of pocket" expenses incurred which are necessary to close the transaction and perfect Lender's security interest, including but not limited to searches, inspections, title insurance. and legal costs; to include travel expense incurred by Lender to obtain signatures on closing documents. Lender agrees that the maximum amount which Borrower shall be responsible for reimbursing to Lender shall be limited to $2,500.00 per transaction (excluding title insurance. mortgage taxes, and recording fees). Lender and Borrower agree that all expenses regarding the closing are to be pre-approved by Borrower. In the event the loan is not closed, Borrower shall reimburse Lender for legal and other closing costs incurred to a maximum of $2500.00. SURVEYS: Borrower will deliver a survey of the property, acceptable to Lender, showing all improvements thereon and all easements affecting the property with ALTA certification in favor of Lender and title insurer. TITLE INSURANCE: An acceptable title commitment issued by either Lawyers Title Insurance Big O Tires, Inc. February 16, 1994 Page 6 Corporation or Transamerica Title insurance Corporation to be followed by a policy will be required by Lender, including deletion of all exceptions requested by Lender. RISK INSURANCE: A copy of the property insurance policy to include the following information is required prior to funding: 1) Expiration Date of Policy 2) AT&T Commercial Finance Corporation named as Mortgagee and Loss Payee with correct spelling of AT&T Commercial Finance Corporation and our address. 3) Location of Collateral. 4) Aggregate/Liability Limit. 5) Deductible Amount. 6) Coverage Amounts. ATTORNEY'S OPINION LETTER: Borrower will provide opinion of counsel at the closing of each transaction in a form acceptable to Lender. INSPECTION: Lender will require inspection of the store by Lender or Lender's designate. EVIDENCE OF AUTHORIZATION: Borrower shall provide evidence satisfactory to the Lender that Borrower (if a corporation) and all corporate guarantors have taken all necessary corporate actions to authorize the transaction contemplated herein. OPTIONAL TERMINATION: Upon the occurrence of any of the following events, Lender at its sole option, may terminate this Commitment and such termination shall be deemed effective as of the day proceeding the date of occurrence of such event: A) Borrower or any person named as a prospective guarantor, mortgagor, pledgor, or grantor of a security interest: 1) sustains a material adverse change in financial condition or financial performance, which determination shall be a Lender's sole discretion: 2) becomes insolvent: 3) commits an act of bankruptcy: 4) voluntarily or involuntarily becomes the subject of a proceeding under the bankruptcy act, as amended; or, 5) defaults on any present or future obligation to Lender, its parent, or any subsidiary of either; or, Big O Tires, Inc. February 16, 1994 Page 7 B) Borrower engages in any assignment or attempted assignment of all or any part of this commitment or any rights hereunder without the prior written consent of Lender; C) Borrower cannot comply with any of the closing requirements set forth in the commitment. MATERIAL CHANGE WITH OPTIONAL TERMINATION: Lender is issuing this commitment in reliance of the present management and financial condition of Borrower and Guarantor. If there is any material change in either the management or financial condition, Lender may, at its option, void the commitment. COMMITMENT FEE: Borrower shall remit a commitment fee of 1.5% of the loan amount. The proposal fee received by Lender shall apply against this amount. This commitment letter shall become operative upon Lender's receipt of this commitment letter executed by the appropriate parties. TERM OF COMMITMENT: Upon receipt of the executed commitment letter by Borrower, this commitment shall remain open through December 31, 1994. If this letter is not executed by Borrower, and the proposal fee is not received by Lender on or before February 18, 1994 this commitment will become null and void. OTHER: (A) All loan documents shall contain such representations, warranties, covenants, events of default. remedies and other provisions as Lender may deem appropriate, it being understood that this commitment letter is intended only as a brief outline of the basic financial and other parameters of the transaction. (B) Legal review of ownership/joint venture partnership by Lender's legal counsel, and acceptance of the ownership structure by Lender, in it's sole discretion. (C) Review and approval of the credit and financial information (as determined to be necessary by Lender) of the real estate developer in the joint venture partnership, and all stockholder(s)/partner(s) of the real estate developer. We thank you for the opportunity to be of service. If the terms of this proposal are acceptable to you, please evidence your acceptance by signing below in the space indicated, and return the executed copy of this letter to the undersigned together with the proposal fee. Big O Tires, Inc. February 16, 1994 Page 8 If you have any questions concerning this proposal, please feel free to call. Sincerely, AT&T COMMERCIAL FINANCE CORPORATION /s/ Thomas J. Shaughnessy Thomas J. Shaughnessy Credit Manager ACKNOWLEDGED AND ACCEPTED: BY: /s/ John B. Adams ----------------------------- TITLE: Executive Vice President ----------------------------- DATE: 2/17/94 ----------------------------- Schedule A Financeable Nonfinanceable ----------------------------------------------------- Purchase price of land Broker Commissions Cost of Construction under Title Insurance Premiums Construction Contract Utility Deposits Soil Compaction Fees Survey Fees Tap Fees (water and Appraisal Fees sanitary sewer Property Taxes Building Permits Points and Interest on Engineering Fees Construction Loans Architectural Fees EPA Related Costs Landscaping Fees Bond Premium Construction Management Liquor License Paving and Concrete Expense Legal Fees Excavation Costs Closing Costs AT&T Closing Fee Recording Costs FF&E, Related Shipping, Taxes Insurance Installation Costs Franchise Fees Exhibit B Page 1 (Insert Address) Re: Appraisal Engagement Dear (Insert Name): This letter will serve to authorize your firm, upon your firm's written acceptance below, to prepare a documented appraisal which sets forth the "Market Value" and Additional Values requested, which values are further defined herein, on the attached Schedule of Property Locations. The Schedule will provide you with the requisite information for access to the subject property(ies) and specific information. To further assist your firm in the preparation of the appraisal, the following information is provided: . All appraisals must conform to the Appraisal Standards of AT&T Commercial Finance Corporation and AT&T Small Business Lending Corporation, which standards are attached as "Attachment A." . All appraisals shall be addressed and certified to (insert AT&T Commercial Finance Corporation or AT&T Small Business Lending Corporation its successors and/or assigns), as client . The Effective Date(s) in your appraisal should be the date of your inspection. . An appraisals must recite all of the instructions contained herein and be fully supported by applicable market data. . All appraisals must address the following approaches to value and, if not applicable, an explanation of its/their absence must be included: Cost Approach - the appraisal should address the estimated reproduction cost of the improvements less depreciation plus the estimated market value of the land as if vacant. Income Approach - in addressing the Income approach to value, if the subject property is in the lease up stage or sell out stage (in the case of a lot or tract development), a discounted cash flow analysis reflecting operating cash flow and the ultimate sales proceeds based on anticipated market conditions should be prepared. Assumptions relative to market conditions should be supported by a market study. If the property Is leased on a long term basis, direct capitalization may be appropriate. Comparable Sales Approach - the appraisal should utilize comparable sales in the given market area with applicable valuation adjustments, if necessary. AT&T Commercial Finance Corporation AT&T Small Business Lending Corporation Appraisal Engagement Letter and Appraisal Standards Page 2 EXHIBIT B PAGE 2 You have quoted a fee of (insert fee - $) to cover all fees and expenses related to the preparation of the report including two (2) copies of each documented appraisal. Please send two copies along with an invoice for the agreed appraisal fee to the undersigned -at the address on the above letterhead. Additionally, you have promised that the documented appraisal will be delivered to the undersigned's attention on or before (insert date). Your acceptance of the terms and conditions of this assignment as stated herein shall be confirmed by your signing and returning the original of this letter to the undersigned within ten (10) days of the date of this letter. Please contact the undersigned should you have any questions concerning the foregoing. Very truly yours, (Insert Your Name) (Insert Your Title) Appraiser's Acceptance of Assignment ------------------------------------ I certify that I have read, understood and will complete this assignment in conformity with the Appraisal Standards of AT&T Commercial Finance Corporation and AT&T Small Business Lending Corporation, receipt of which is hereby acknowledged, and can comply with the promised delivery date set forth above. Accepted By:______________________________ Date: ______________________________ AT&T Commercial Finance Corporation AT&T Small Business Lending Corporation Appraisal Engagement Letter and Appraisal Standards Page 3 PAGE 3
Property Location* Property Contact and Telephone # Additional Valuations --------------------- -------------------------------- ------------------------- A 1123 Anywhere Street Jim Smith Land & Building; Morristown, NJ 07960 (201)395-3472 ---------------- (Lot 34, Block 23A) Fair Value (Lot 34, Block 23A) Equipment: ---------- Orderly Liquidation Value B 234 Long Road John Doe Equipment only Anywhere NJ 07896 (609)235-6586 --------------
*Include Lot and Block number for real property valuations Property Description and Special Instructions: ---------------------------------------------- (For real property attach or type a full legal description of the subject premises. For equipment give a full description of the equipment to be appraised) Example: -------- Properties A and B are operated as Burger King restaurants. Attached Is a legal description for Property A and schedule of specific equipment to be appraised at Property B. AT&T Commercial Finance Corporation AT&T Small Business Lending Corporation Appraisal Engagement Letter and Appraisal Standards Page 4 Exhibit B Page 4 ATTACHMENT A APPRAISAL STANDARDS OF AT&T COMMERCIAL FINANCE CORPORATION AND AT&T SMALL BUSINESS LENDING CORPORATION ----------------------------------------------------------------------------- All appraisals prepared for AT&T Commercial Finance Corporation and AT&T Small Business Lending Corporation shall adhere to the following standards: . The appraisal must conform to the Uniform Standard of Professional Appraisal Practice (USPAP) adopted by the Appraisal Standards Board of the Appraisal Foundation, except that the Departure Provision of the USPAP (which permits assignments calling for something less than a full appraisal) shall not apply. . The report must disclose any steps that were necessary or appropriate to comply with the Competency Provision of the USPAP. . The following definitions of value are to be recited and used, as applicable depending on the type of property being appraised, in the documented appraisal: Market Value (Real Property) ---------------------------- "The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: 1. Buyer and seller are typically motivated; 2. Both parties are well informed or well advised and each acting in what they consider their best interest; 3. A reasonable time Is allowed for exposure in the open market 4. Payment is made in terms of cash in US. dollars or in terms of financial arrangements comparable thereto; and 5. The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale." Fair Value (Real Property) -------------------------- "Cash price that might reasonably be anticipated in a current sale under all conditions requisite to a fair sale. A fair sale means a sale in which the buyer and seller are each acting prudently, knowledgeably and under no necessity to buy or sell other than in a forced or liquidation sale. The appraiser should estimate the cash price that might be received upon exposure to the open market for a reasonable time, considering property type and local market conditions. When a current sale Is unlikely (a sale which can be consummated within twelve (12) months), the appraiser must discount all cash flows generated by the property to obtain the estimate of fair value. These cash flows include, but are not limited to, those arising from ownership, development, operation and sale of the property. AT&T Commercial Finance Corporation AT&T Small Business Lending Corporation Appraisal Engagement Letter and Appraisal Standards Page 5 EXHIBIT B PAGE 5 The discount applied shall reflect the appraiser's judgment of what a prudent, knowledgeable purchaser under no necessity to buy would be wiling to pay to purchase the property in a current sale. In the determination of this value, reasonable cost selling costs should be included based on local market conditions." Fair Market Value (Equipment and Personal Property) --------------------------------------------------- "The price at which property would change hands between a willing buyer and willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts ... in the most common market This value is determined on the basis of and equal in amount to the value that would be obtained in an arm's - length transaction (other than a lessee currently in possession or a used equipment dealer. The determination of this value should not include a deduction of the costs of removal from the location of current use from such value." Orderly Liquidation Value (Equipment and Personal Property) ----------------------------------------------------------- "The amount of gross proceeds that could be expected from the sale of property held under orderly conditions given a period of time in which to find a purchase(s) considering a complete sale of all assets, As Is, where is, and all sales made free and clear of all liens and encumbrances." Liquidation Value (Equipment and Personal Property) --------------------------------------------------- "The estimated gross dollar amount that could be typically realized by a properly conducted public auction held under forced conditions and under present day economic trends to derive an asset value which takes into consideration such inflationary or depreciable conditions as physical location, difficulty of removal, adaptability or specialization, marketability, physical condition and overall appearance." . All appraisals shall report Market Value "As Is" on the Effective Date of the appraisal. This means an estimate of the value of the property in the condition observed upon inspection and as it physically and legally exists without hypothetical conditions or assumptions. . All appraisals shall be addressed and certified to AT&T Commercial Finance corporation and/ or AT&T Small Business Lending Corporation as specified in the engagement letter. . All appraisal reports must be prepared in a narrative format or on forms which are appropriate for the property type (i.e. current FNMA or FHLMC approved forms for residential properties) and which result in a complete appraisal report in compliance with the Uniform Standards of Professional Practice: A. An appraisal report shall be sufficiently descriptive to enable the reader to ascertain the estimated Market Value and the rationale for the estimate; and B. An appraisal report should provide detail and depth of analysis which reflects the complexity of the property appraised. AT&T Commercial Finance Corporation AT&T Small Business Lending Corporation Appraisal Engagement Letter and Appraisal Standards Page 6 EXHIBIT B PAGE 6 . The appraisal report shall analyze and report in reasonable detail any prior sales of the property being appraised that occurred within the following time periods: A. For one to four family residential property, one year preceding the Effective Date of the appraisal; B. For all other types of real property, three years preceding to Effective Date of the appraisal; and C. For equipment also indicate original cost of the property. . An appraisal of an existing income producing property should document actual income, vacancy. expenses and net income for the two year period prior to the date of valuation. The appraiser's forecast of future income, vacancy, expenses and not income shall be fully explained and shall bear a reasonable relationship to the past financial performance of the property. . The appraisal should analyze and report on current market conditions and trends that will affect projected income or the absorption period, to the extent they affect the value of the subject property. Such trends might include, for example, increasing vacancy rates, greater use of rental concessions or declining sales prices. Identification of negative trends is particularly important in avoiding extensions of credit on collateral which is likely to decline in value. . Appraisals of properties with proposed construction (or partially completed construction) shall also report Market Value "as if completed" on the Effective Date of the appraisal. This means the value of the property with all proposed construction hypothetically completed and ready for occupancy by tenants or for sale to end users, based upon market conditions anticipated to prevail in the foreseeable future. . Appraisals of properties with proposed construction should address the project's marketability and feasibility prospects, including: A. A market analysis should be provided which shows that there is sufficient demand for the units to be absorbed in the market place and concludes with an estimated absorption rate. B. A feasibility analysis should be provided which shows that the value of the completed project is sufficiently in excess of costs in order to provide an adequate yield on Invested capital or level of entrepreneurial profit. C. The appraiser shall state an opinion as to whether the proposed project represents the highest and best use of the property being appraised. AT&T Commercial Finance Corporation AT&T Small Business Lending Corporation Appraisal Engagement Letter and Appraisal Standards Page 7 EXHIBIT B PAGE 7 . Appraisals of properties with proposed construction or with unleased space or unsold units must analyze and report all appropriate deductions and discounts, including: A. An appraisal of a proposed or partially leased income producing property for which market conditions indicate stabilized occupancy is not likely on the date of completion, should employ a discounted cash flow analysis to estimate the "Market Value as if completed but prior to stabilized occupancy on the Effective Date of the appraisal." Such a valuation should fully reflect the anticipated pattern of income and pertinent operating expenses during the absorption period as well as the impact of rental and other concessions. B. An appraisal of a proposed or partially leased Income producing property should also report the "Market Value as if completed and at stabilized occupancy on the Effective Date of the appraisal." This means the value of the property under the assumption that all improvements are physically completed and the property has been leased to its optimum level of long term occupancy. C. An appraisal of a proposed tract development or a property with unsold units must report the Market Value of the property in its entirety to one purchase. The valuation must reflect all appropriate deductions and discounts as well as the anticipated cash flows to be derived from the disposition of the asset over time. Appropriate deductions and discounts are considered to be those that reflect all expenses associated with the disposition of the real property as well as the cost of capital and entrepreneurial profit. . An appraisal of a property with proposed construction or with unleased space or unsold units should not be based on unrealistic assumptions about the future. Forecasts of future prices, absorption rates and discount/capitalization rates must be based on market conditions as of the Effective Date of the appraisal. . An appraisal must be self contained. That is, the appraisal report must contain all information necessary for the reviewer to understand the appraises's opinion. The appraisal should not incorporate by reference a document that is not readily available to the reviewer. Studies prepared by a third party must be verified and accepted by the appraiser to the extent that assumptions or conclusions of such studies are used in the appraisal report. The appraiser's acceptance or rejection of outside assumptions or conclusions must be clearly stated the appraisal report. . An appraisal must contain the legal description of the property appraised. Typically, this should be a metes and bounds description. The legal description is in addition to, and not in lieu of, the property description required by the Uniform Standards of Professional Appraisal Practice. AT&T Commercial Finance Corporation AT&T Small Business Lending Corporation Appraisal Engagement Letter and Appraisal Standards Page 8 EXHIBIT B PAGE 8 . The value estimate must reflect the Market Value to the rights in real estate separate and apart from any attributable to any other interest including, but not necessarily limited to, furniture, fixtures, equipment, goodwill, going concern or business value, etc. The value of any non-realty interest(s) must be estimated based upon its Market Value and clearly identified and set forth in the appraisal report. . The property rights being appraised must be clearly identified. Properties subject to arms-length leases as of the appraisal date are to be appraised on a leased fee estate basis with recognition in the valuation of the terms of all existing leases. . An appraisal must address the Sales Comparison, Income, and Cost approaches to value. It must incorporate a reasonable methology which reconciles these approaches into a value conclusion. If one or more approaches are not used, the appraiser must explain the reason for eliminating those approaches. . The financing terms of comparable sales should be reported. If any sales utilized as comparable sales were influenced by financing terms or concessions, they must be adjusted to their cash equivalent price. Moreover, all units of comparison extracted from these sales must reflect the cash equivalent price. . All adjustments for dissimilarities between the subject property and the comparable transactions, as well as all discount and capitalization rates, etc., must be adequately explained and supported by market evidence. . The expected normal marketing period for the subject property must be estimated. This means an estimate of the amount of time necessary to market the property and achieve a sale to one buyer at a price consistent with the appraiser's Market Value conclusion. Marketing period in this context is not to be confused with absorption period. . The appraisal report must contain a signed certification in substantially the same form as specified in Standards Rule 2-3 of the Uniform Standards of Professional Appraisal Practice. In addition, the appraiser must include in the certificate to the statement that the appraisal assignment was not based on a requested minimum valuation or specific valuation or approval of a loan. . One copy of these appraisal standards along with the engagement letter written to the appraiser and any special instructions shall be made part of each appraisal report submitted to AT&T Commercial Finance Corporation and/or AT&T Small Business Lending Corporation, as specified in the engagement letter. . The specific individual who is engaged for this assignment must personally inspect the subject property, prepare or actively supervise the preparation of the appraisal report, and sign and accept full responsibility for the contents of to report document. AT&T Commercial Finance Corporation AT&T Small Business Lending Corporation Appraisal Engagement Letter and Appraisal Standards Page 9 EXHIBIT B PAGE 9 . The information to be included in, and the reasons for this Appraisal are the property of AT&T Commercial Finance Corporation/AT&T Small Business Lending Corporation, its successors and/or assigns and are Proprietary and Confidential. As such the appraiser agrees to the following: A. Not to use or allow the use of any portion of the Appraisal or any of the information or other materials used by the appraiser in conducting or formulating the Appraisal for any purpose other than for disclosure of the Appraisal and its contents to AT&T Commercial Finance Corporatio/ AT&T Small Business Lending Corporation its successors and/or assigns; and B. Not to disclose, or allow disclosure to others without the prior written consent of AT&T Commercial Finance Corporation/AT&T Small Business Lending Corporation its successors and/or assigns, any portion of the Appraisal, or any of the information or other materials used by the appraiser in conducting or formulating the Appraisal, except to AT&T Commercial Finance Corporation/AT&T Small Business Lending Corporation its successors and/or assigns, and then only to and its affiliates, agents, advisors, consultants, affiliates, representatives, and employees, as designated by authorized AT&T Commercial Finance Corporation/AT&T Small Business Lending Corporate personnel. . If information required or deemed pertinent to the completion of an appraisal is unavailable to the appraiser, that fact shall be clearly disclosed and explained in the appraisal report. EX-10.73 14 LOAN AGREEMENT FRANCHISEE EXHIBIT 10.73 [LOGO OF AT&T Capital Corporation] ---------------------------------------------------------------------------- Suite 450 5613 D.T.C. Parkway Englewood, CO 80111 303 741-4144 FAX 303 220-8336 February 16, 1994 John Adams Executive Vice President Big 0 Tires, Inc 11 755 E. Peakview Ave. Englewood, CO 80111 Dear Mr. Adams: AT&T Commercial Finance Corporation ("Lender") is pleased to confirm that we have established a line of credit not to exceed $2,000,000.00, including amounts previously funded, under the terms and conditions described below. This approval supersedes and replaces the previous $1,000,000 line of credit described in the letter dated July 22, 1992. All projects unfunded or without individual commitment will be subject to the terms and conditions of this agreement. A. BASIC CREDIT TERMS BORROWER: A retail joint venture partnership consisting of a franchisee of Big O Tires, Inc. (identified by Big O Tires, Inc), and Big O Retail Enterprises, Inc. GUARANTOR: All stockholder(s)/partner(s) of the franchisee, including the spouse(s) of the stockholder(s)/partner(s). Big O Retail Enterprises, Inc. Big O Tires, Inc. AMOUNT: Lender to advance 100% of the cost of the equipment and inventory for each Big O retail store, not to exceed $120,000.00 (maximum of $40,000.00 for initial inventory.) PURPOSE: Loan proceeds will be used for development of new retail locations for Big O Tires, Inc. TERM: Equipment: 5 year note, 5 year amortization INTEREST RATE: The interest rate on the unpaid balance shall be: Option 1 - Fixed rate of 410 basis points above the published average yield on U.S. Treasury Notes maturing five (5) years from the date of closing. Option 2 - Floating rate of the Prime Rate plus 2.25% adjusted monthly. The "Prime Rate" is defined as the Prime Rate publicly announced as being charged by Chase Manhattan Bank, N.A., New York, New York, [Recycled Logo] Big O Tires, Inc. February 16, 1994 Page 2 from time to time (which may not necessarily be the lowest rate charged). Payments will be fixed at the time of funding based on the Prime Rate plus 2.50%. Based on this payment, an amortization schedule outlining the remaining principal balance at each quarter end will be developed. Should the remaining principal balance at any quarter end be equal to or greater than the amount stated in the amortization schedule, Borrower will be responsible for an additional payment equal to the amount necessary to reduce the principal balance to the predetermined amount as stated in the amortization schedule. Option 3 - True Lease Option with a rate factor based on 370 basis points above the published average yield on U.S. Treasury Notes maturing five (5) years from the date of closing. Lease Purchase Option - Lessee will have three options at lease end: (1) renew the lease for a minimum of 12 months at the then fair market value lease rate, (2) purchase the equipment for the greater of its then fair market value (as determined by an appraiser jointly determined by Lender and Borrower) or 10% of the equipment's original cost, or (3) return the equipment to Lender. ADVANCE PAYMENTS: Borrower shall either: A) remit the 60th payment at closing, if either Option #1 or #2 under Interest Rate is chosen, or B) remit the first and the last payment at closing, if the True Lease Option is chosen. Said Advance Payment(s) shall be retained by Lender as a security deposit, and Lender shall apply said payment when due, or shall reduce Borrower's loan balance/lease balance if the account is prepaid, or is in default. (On each closing, Lender shall allow $500.00 from the Commitment Fee to be used as part of the Advance Payments.) PREPAYMENT PENALTIES: Prepayment penalties will be assessed on the unpaid principal balance as follows: % of Principal Year of Contract Balance ---------------- --------------- Year 1 3% Year 2 2% Year 3 1% Year 4-5 0% LATE CHARGE AND DEFAULT INTEREST: A late payment charge of 5% of the payment amount will be assessed on all payments received more than 10 days after its scheduled due date. In the event of default, the interest rate charged shall increase to a rate 400 basis points over the rate otherwise payable. Big O Tires, Inc. February 16, 1994 Page 3 B. COLLATERAL REQUIREMENTS COLLATERAL: Transaction to be secured by a first lien position in favor of Lender on all equipment and inventory of each Big O retail store financed by Lender. JUNIOR LIEN: No liens or encumbrances on the collateral will be permitted except those in favor of Lender. Lender acknowledges and agrees that Big O Tires, Inc. may place a junior lien on the collateral. ENVIRONMENTAL REQUIREMENTS: Federal and State Environmental Requirements: --------------------------------------------- A) Borrower will meet or exceed all EPA requirements or regulations that are in effect and will meet or exceed all applicable future EPA requirements or regulations as they become effective. B) Borrower will promptly take whatever action is necessary when they have knowledge that an environmental accident has occurred including the financial responsibility for the clean up process. C. FINANCIAL STATEMENTS FINANCIAL: Annual financial statements and tax returns of Borrower shall be furnished to Lender within 120 calendar days of the end of each fiscal year-end period. Interim semi-annual financial statements shall be provided to Lender within 30 calendar days of the end of each 6 month fiscal period. OTHER FINANCIAL: In addition to the financial statements required in the section "Financial" above, annual income tax returns and personal financial statements of Guarantors shall be furnished to Lender within 120 calendar days of the end of each tax fiscal year-end. Should Guarantor(s) provide Lender with certified annual financial statements, annual income tax returns shall not be required. D. CONDITIONS TO CLOSING DOCUMENTATION: Documentation acceptable to Lender, at Lender's sole discretion, will be required, including but not limited to Promissory Notes, Guarantees, Security Agreements, UCC-1 Filings, and releases of prior liens. In addition, appropriate waivers will be required from landlord, mortgagor and/or mortgagee, unless such requirement is waived by Lender in writing, at Lender's sole discretion. FUNDING: Funding will take place upon Lender's confirmation of the delivery and Big O Tires, Inc. February 16, 1994 Page 4 installation of the equipment, and Lenders receipt of the final Certificate of Occupancy. COSTS: Borrower shall reimburse Lender for all "out of pocket" expenses incurred which are necessary to close the transaction and perfect Lender's security interest, including but not limited to searches, inspections, title insurance, and legal costs; to include travel expense incurred by Lender to obtain signatures on closing documents. In the event the loan is not closed, Borrower shall reimburse Lender for legal and other closing costs incurred. Lender agrees that the maximum amount which Borrower shall be responsible for reimbursing to Lender shall be limited to $1,000.00 per transaction. Lender and Borrower agree that all expenses regarding the closing are to be pre-approved by Borrower. FRANCHISE AGREEMENT: This commitment is expressly contingent upon Big 0 Tires, Inc. having issued a franchise agreement on the proposed location to the retail joint venture. Said franchise agreement shall have a remaining term of no less than 8 years. RISK INSURANCE: A copy of the property insurance policy to include the following information is required prior to funding: 1) Expiration Date of Policy 2) AT&T Commercial Finance Corporation named as Mortgagee and Loss Payee with correct spelling of AT&T Commercial Finance Corporation and our address. 3) Location of Collateral. 4) Aggregate/Liability Limit. 5) Deductible Amount. 6) Coverage Amounts. INSPECTION: Lender will require inspection of the store by Lender or Lenders designate. EVIDENCE OF AUTHORIZATION: Borrower shall provide evidence satisfactory to the Lender that Borrower (if a corporation) and all corporate guarantors have taken all necessary corporate actions to authorize the transaction contemplated herein. OPTIONAL TERMINATION: Upon the occurrence of any of the following events, Lender at its sole option, may terminate this commitment and such termination shall be deemed effective as of the day proceeding the date of occurrence of such event: A) Borrower or any person named as a prospective guarantor, mortgagor, pledgor, or grantor of a security interest; 1) sustains a material adverse change in financial condition or financial performance, which determination shall be a Lender's sole Big O Tires, Inc. February 16, 1994 Page 5 discretion; 2) becomes insolvent; 3) commits an act of bankruptcy; 4) voluntarily or involuntarily becomes the subject of a proceeding under the bankruptcy act, as amended; or, 5) defaults on any present or future obligation to Lender, its parent, or any subsidiary of either; or, B) Borrower engages in any assignment or attempted assignment of all or any part of this commitment or any rights thereunder without the prior written consent of Lender; C) Borrower cannot comply with any of the closing requirements set forth in the commitment. MATERIAL CHANGE WITH OPTIONAL TERMINATION: Lender is issuing this commitment in reliance of the present management and financial condition of Borrower and Guarantor. If there is any material change in either the management or financial condition, Lender may, at its option, void the commitment. COMMITMENT FEE: Borrower shall remit a commitment fee of .5% of the loan amount. The proposal fee received by Lender shall apply against this amount. This commitment letter shall become operative upon Lender's receipt of this commitment letter executed by the appropriate parties. TERM OF COMMITMENT: Upon receipt by Lender of the executed commitment letter and commitment fee, this commitment shall remain open through 12-31-94. If this letter is not executed by Borrower, and received by Lender on or before February 18, 1994 this commitment will become null and void. OTHER: (A) All loan documents shall contain such representations, warranties, covenants, events of default, remedies and other provisions as Lender Big O Tires, Inc. February 16, 1994 Page 6 may deem appropriate, it being understood that this commitment letter is intended only as a brief outline of the basic financial and other parameters of the transaction. (B) Legal review of ownership/joint venture partnership by Lender's legal counsel, and acceptance of the ownership structure by Lender, in R's sole discretion. (C) Review and approval of the credit and financial information (as determined to be necessary by Lender) of the franchisee in the joint venture partnership, and all stockholder(s)/partner(s) of the franchisee. We thank you for the opportunity to be of service. If the terms of this commitment are acceptable to you, please evidence your acceptance by signing below in the space indicated, and return the executed copy of this letter to the undersigned. If you have any questions concerning this commitment, please feel free to call. Sincerely, AT&T COMMERCIAL FINANCIAL CORPORATION /s/ Thomas J. Shaughnessy ------------------------- Thomas J. Shaughnessy Credit Manager ACKNOWLEDGED AND ACCEPTED By: /s/ John B. Adams -------------------------- John B. Adams Title: Executive Vice President and Chief Financial Officer Date: 02/17/94 Big O Tires, Inc. February 16, 1994 Page 7
Schedule A Financeable Nonfinanceable -------------------------------------------------------------- Purchase price of land Broker Commissions Cost of Construction under Title Insurance Premiums Construction Contract Utility Deposits Soil Compaction Fees Survey Fees Tap fees (water and Appraisal Fees sanitary sewer Property Taxes Building Permits Points and interest on Engineering Fees Construction Loans Architectural Fees EPA Related Costs Landscaping Fees Bond Premium Construction Management Liquor License Paving and Concrete Expense Legal Fees Excavation Costs Closing Costs AT&T Closing Fee Recording Costs FF&E, Related Shipping, Taxes Insurance installation Costs Franchise Fees
EX-10.74 15 CREDIT LETTER EXHIBIT 10.74 AT&T Capital Corporation Suite 450 5613 D.T.C. Parkway Englewood, CO 80111 1-800 525-3343 303 741-4144 FAX 303 220-8336 December 9, 1994 Mr. John Adams Executive Vice President Big O Tires Inc. 11755 E. Peakview Ave. Englewood, CO 801 11 Dear Mr. Adams: AT&T Capital is pleased to advise you that the existing lines of credit for Big O Tires Inc. (aggregate financing up to $11,750,000) have been extended through 12-31-95. The terms and conditions of these credit facilities (more fully described in the attached copies of commitment letters dated 2/16/94) remain in full force and effect with the following additions: 1) At Big O Tires Inc.'s option, any remaining availability under the equipment line of credit of $2,000,000 may be used to finance real estate, subject to the terms and conditions of the real estate commitment. 2) When advances under the line are subsequently paid out by a Big O Tires franchisee, and where Big O Tires Inc has no further financial obligation to AT&T Capital relating to said loan, the availability under the line will then increase by the amount repaid. Outstandings under the line shall include all existing loans and any other obligations to AT&T Capital where Big O Tires Inc. is directly or contingently liable. If the above reflects our mutual understanding, please acknowledge where indicated below. Sincerely, AT&T CAPITAL CORPORATION /s/ Janet Rogers -------------------- Janet Rogers Credit Manager ACKNOWLEDGED AND ACCEPTED: By: /s/ John B. Adams Title: Executive Vice President Date: 12/9/94 EX-10.75 16 RESIG LTR PUCKETT EXHIBIT 10.75 ROBERT L. PUCKETT February 27, 1995 Big O Tires, Inc. Attn: Mr. John B. Adams 11755 East Peakview Avenue Englewood, CO 80111 Dear John: In accordance with our mutual agreement, I am resigning as the Corporate Controller of Big O Tires, Inc. effective Friday, February 24, 1995 and as an employee effective March 31, 1995. This letter sets forth our agreement with respect to certain matters relating to my resignation as discussed between us on Thursday, February 23, 1995. If you agree, please sign below. 1. Severance Pay: As the former Corporate Controller, I will be entitled to severance pay commencing with my termination date of March 31, 1995 in accordance with the Executive Management Severance Pay Policy which is attached to this letter. 2. Continuation of Other Benefits: Big O will continue to provide medical, dental, life and AD&D insurance benefits according to the same policy. I understand that all other benefits and perquisites as specified in that policy will cease on March 31, 1995. I am aware that if I am carrying Supplemental Life and Supplemental Accidental Death and Dismemberment insurance, I may address the continuation of those supplemental plans beyond my termination date by contacting the insurance carrier directly. I further understand that you will send to me special notice regarding my rights to continue medical benefits under COBRA following the date of cessation of coverage. 3. Other Plans: The plan documents of other benefit programs, e.g. Big O Tires, Inc. Employee Stock Ownership Plan, the Big O Tires, Inc. Director and Employee Stock Option Plan, the Big O Tires, Inc. Long Term Incentive Plan, and the 401(k) Retirement Plan will govern my rights and benefits under those plans. 4. Professional Outplacement Assistance: Big O Tires, Inc. will provide me with Professional Outplacement Assistance through a mutually agreeable outplacement firm and reimburse that firm for actual expenses not to exceed Five Thousand, Five Hundred Dollars ($5,500). 5. Accumulated Vacation: Compensation for thirteen (13) days of earned vacation will be added to my paycheck for the period including March 31, 1995. This represents the earned and unused vacation grant due to me on that date. 1 6. Expenses and Company Property: I will submit my claim for expenses that I have incurred on behalf of the Company by April 10, 1995. I will also return any Company property before my termination date. 7. Indemnification: Big O will indemnify and hold me harmless with respect to any liability, damage, cost or expense (including reasonable Counsel fees) incurred in connection with any threatened, pending or contemplated claim, action, suit, proceeding or investigation to which I am or was a party or threatened to be made a party by reason of having been an Officer or Employee of the Company to the full extent permitted by the Articles of Incorporation and By- Laws of Big O Tires, Inc. 8. Confidentiality: I agree that I will treat as private and privileged any trade secrets and other information, data, figures, projections, estimates, customer lists, price lists, internal procedures, and the like and I will not release any such information to any person, firm, corporation or other entity, either by statement, deposition or as a witness, except upon direct written authority of a member of the Office of the CEO of Big O Tires, Inc. and Big O Tires, Inc. shall be entitled to an injunction by any competent court to enjoin and restrain the unauthorized disclosures of such information. This information will also include, without limitation, that which has been furnished to me by Big O with respect to its products and their marketing, distribution, pricing and application, that is confidential or proprietary and/or which is subject to Copyright and Trademark protections. I agree that I will not at any time talk about, write about or otherwise publicize the terms or existence of this agreement with Big O Tires, Inc. or any fact concerning its negotiation, execution or implementation except as may be necessary to discuss such with my attorney or tax advisor. I will not testify or give evidence in any forum concerning my employment or termination of employment with Big O Tires, Inc. unless required by law. 9. Non-Competition: For a period of twelve months (12) from my termination date, i.e. until March 31, 1996, I will not compete with Big O Tires, Inc. I will not engage in or assist any person, firm, corporation or entity in the business of wholesaling or retailing of tires and related automotive products or the business of automotive franchise operations in the continental United States of America. 10. Release: (a) In further consideration of the rights and obligations created by this Agreement, the receipt and sufficiency of which are hereby acknowledged, I, for myself, my heirs, personal representatives, successors and assigns, hereby fully and forever release and discharge Big O, its subsidiaries, affiliates, and each of them, as well as their officers, directors, shareholders, employees, agents, attorneys, successors, and assigns, from any and all claims, demands, obligations, actions, liabilities, and damages of every kind and nature whatsoever, at law or in equity, known or unknown, suspected or unsuspected, that I may now have or claim at any future time to have, based in whole or in part upon any act or omission through the date of my resignation from employment with Big O, including without limitation those claims, demands, obligations, actions, liabilities, and damages arising from, relating to or based upon my employment with Big O or separation from employment with Big O, except as provided herein. I do not release Big O from obligations under the severance package or the indemnification described above. 2 (b) I agree that the release in subparagraph 10 (a) includes, but is not limited to, an express waiver of rights and claims under federal and state statutes that prohibit employment discrimination on the basis of sex, race, national origin, religion, disability and age, such as the Age Discrimination in Employment Act of 1987, Title VII of the Civil Rights Act of 1964, as amended, the Rehabilitation Act of 1973, the Americans With Disabilities Act, the Family and Medical Leave Act, the Equal Pay Act, and the Colorado Civil Rights Act, as well as all common law rights and claims, such as breach of contract, express or implied, tort, whether negligent or intentional, constructive discharge, and wrongful discharge. I agree that the benefits under this Agreement, which I accept by signing this Agreement and to which I would not otherwise be entitled, have value to me. I, after having been advised to consult with an attorney, affirm that I have been offered at least 21 days in which to consider executing this Agreement. I am further aware of my right to revoke the waiver of claims within 7 days after signing this Agreement. If I revoke the waiver of claims contained in this paragraph within 7 days after signing this letter, I shall immediately return to Big O all sums I have received pursuant to this Agreement and in that event this Agreement shall be of no further force or effect. (c) It is intended that this release be construed in the broadest possible manner, to further the intention of the parties that all potential disputes between them arising out of or connected to my employment with Big O be forever resolved. 11. Release by Big O: In consideration of the rights and obligations created by this Agreement, the receipt and sufficiency of which are hereby acknowledged, Big O, for itself, its subsidiaries, affiliates, and each of them as well as their officers, directors, shareholders, employees, agents, attorneys, successors and assigns, hereby fully and forever releases and discharges me, my heirs, personal representatives, successors and assigns, from any and all claims, demands, obligations, actions, liabilities and damages of every kind and nature whatsoever, at law or in equity, known or unknown, suspected or unsuspected that Big O may now have or claim at any future time to have, based in whole or in part upon any act or omission through the date of my separation from employment with Big O, including without limitation those claims, demands, obligations, actions, liabilities, and damages arising from, relating to or based upon my employment with Big O or separation from employment with Big O. Yours very truly, /s/ Robert L. Puckett ---------------------------- Robert L. Puckett Accepted, Big O Tires, Inc. by: /s/ John B. Adams ---------------------------- By: John B. Adams Executive Vice President Attachment 3 BIG O TIRES, INC. HUMAN RESOURCES GUIDELINES ------------------------------------------------------------------------------ Executive Management TITLE: Severance Pay Policy NUMBER: 2.11.1 -------------------- ----------- EFFECTIVE DATE: 06/07/94 REVISION DATE: ----------- -------------------- PAGE 1 OF 3 --- ------------------------------------------------------------------------------- SCOPE: ----- Big O Tires, Inc. executive management employees as indicated herein. PURPOSE: ------- To provide a fair and appropriate level of compensation to certain executive management employees (as indicated herein) in the event of an involuntary termination other than listed below. GUIDELINE: --------- 1. Eligibility for this benefit is defined as any active, regular, full-time employee who is employed by Big O in one of the following positions: Vice President -- Regional or Corporate, General Counsel or Corporate Controller; Vice President -- Senior or Executive; and President and CEO. 2. This guideline does not apply in the case of an executive who voluntarily resigns (except where such resignation is mutually agreed upon) or who is involuntarily terminated by Big O based on its good faith belief that the termination was caused by the executive as a result of committing acts of fraud, gross negligence, willful misconduct, or a crime involving moral turpitude. 3. Severance pay will be granted in the form of continued base salary payments for a specified period of time but in no event less than the minimum benefit. If the individual finds new employment during the severance period, then Big O will: 1) pay the individual the shortage (if any) between the individual's new salary and his/her former base salary for the duration of the severance period or 2) terminate the severance pay if the individual's new salary is greater than his/her former base salary. The severance period will vary according to job level and full years of service as described below: 4 BIG O TIRES, INC. HUMAN RESOURCES GUIDELINES ------------------------------------------------------------------------------ Executive Management TITLE: Severance Pay Policy NUMBER: 2.11.1 -------------------- ----------- EFFECTIVE DATE: 06/07/94 REVISION DATE: ----------- -------------------- PAGE 2 OF 3 --- ------------------------------------------------------------------------------- =============================================================================== POSITION SEVERANCE BENEFIT ================================================================================ Vice President, Regional & 3 weeks pay per each full year of service Corporate; General Counsel; with the Company plus 1 week per each Corporate Controller full $10,000 of salary. MINIMUM BENEFIT: 6 MONTHS MAXIMUM BENEFIT: 12 MONTHS Professional outplacement assistance after 5 full years of service, not to exceed $5,500. ================================================================================ Vice President, Senior & Executive 2 months pay per each full year of service with the Company plus the minimum benefit, but not to exceed the maximum benefit. MINIMUM BENEFIT: 9 MONTHS MAXIMUM BENEFIT: 18 MONTHS Professional outplacement assistance after 3full years of service, not to exceed $8,000. ================================================================================ President/Chief Executive Officer 3 months pay per each full year of service with the Company plus the minimum benefit, but not to exceed the maximum benefit. MINIMUM BENEFIT: 12 MONTHS MAXIMUM BENEFIT: 24 MONTHS Professional outplacement assistance after 2 full years of service, not to exceed $10,000. ================================================================================
4. Big O will continue to provide medical, dental, and life and AD&D insurance benefits at the same level provided during employment until the severance period ends or the executive begins a new position where benefits are comparable/equal. All voluntary benefits elected by the executive will continue unless the Company is instructed 5 BIG O TIRES, INC. HUMAN RESOURCES GUIDELINES ------------------------------------------------------------------------------ Executive Management TITLE: Severance Pay Policy NUMBER: 2.11.1 -------------------- ----------- EFFECTIVE DATE: 06/07/94 REVISION DATE: ----------- -------------------- PAGE 3 OF 3 --- ------------------------------------------------------------------------------- otherwise. All other benefits and perquisites, such as short and long term disability, top hat, 401(k), 125 flex plan, use of Company car or auto allowance, club membership, D.S.O., etc. will cease with termination of active employment. ESOP is governed by the ESOP document. The Company's Annual Incentive Bonus Plan is prorated through the end of active employment to an executive who qualifies for this guideline, and will be paid within 45 days after the end of such active employment. The Company's LTI program is governed by the LTI plan document. 5. Big O will provide professional outplacement services as listed by management level to assist the executive in locating a new position up to the amount specified. 6. If an eligible executive's job duties are reduced significantly, such that the executive can no longer be reasonably considered to be performing in a job capacity of comparable job size/scope, the executive may terminate employment with 90 days written notice. Upon termination, the executive will be eligible for severance pay under the terms specified herein. 6 EX-10.76 17 RESIG LTR DWYER EXHIBIT 10.76 DAVID W. DWYER February 24, 1995 Big O Tires, Inc. Attn: Mr. Horst K. Mehlfeldt 11755 East Peakview Avenue Englewood, CO 80111 Dear Horst, At your request, but not for cause, I am involuntarily terminating my employment with Big O Tires, Inc. Accordingly, I an resigning as an Officer of Big O Tires, Inc. effective today, February 24, 1995 and as an employee effective March 10, 1995. This letter sets forth our agreement with respect to certain matters relating to my resignation as discussed between us today. If you agree, please sign below. 1. Severance Pay: As former Corporate Vice President, I will be entitled to severance pay of $10,000 upon my termination date of March 10, 1995. 2. Continuation of Other Benefits: Big O will continue to provide medical, dental, life and AD&D insurance benefits according to the same policy. I understand that all other benefits and perquisites as specified in that policy will cease on March 10, 1995. I acknowledge that the benefits and perquisites which will cease on my termination date include the golf membership at Heatheridge Country Club, the car allowance and the Top Hat Disability Coverage. I am aware that if I am carrying Supplemental Life and Supplemental Accidental Death and Dismemberment insurance, I may address the continuation of those supplemental plans beyond by termination date by contacting the insurance carrier directly. I further understand that you will send to me special notice regarding my rights to continue medical benefits under COBRA following the date of cessation of coverage. 3. Other Plans: The plan documents of other benefit programs, e.g. Employee Stock Ownership Plan, the Big O Tires, Inc. Director and Employee Stock Option Plan and the 401K Retirement Plan will govern my rights and benefits under those plans, subject to the following special provisions: Grant number 000015, covering 3,559 shares, granted January 14, 1992, at an option price of $5.15262, and Grant number 000026, covering 4,841 shares, granted April 16, 1993, at an option price of $12.25... shall both be 100% vested and shall be exercisable within six months of the date of this letter. 1 4. Professional Out-Placement Assistance: Big O Tires, Inc. will provide me with Professional Out Placement Assistance through a mutually agreeable out placement firm and reimburse that firm for actual expenses not to exceed Five Thousand Five Hundred Dollars ($5,500). 5. Accumulated Vacation: Compensation for my earned vacation from January 1, 1995 through March 10, 1995 will be added to my last paycheck. 6. Expenses and Company Property: I will submit my claim for expenses that I have incurred on behalf of the Company by March 10, 1995. I will also return any Company property before my termination date. 7. Indemnification: Big O will indemnify and hold me harmless with respect to any liability, damage, cost or expense (including reasonable Counsel fees) incurred in connection with any threatened, pending or contemplated claim, action, suit, proceeding or investigation to which I am or was a party or threatened to be made a party by reason of having been an Officer or Employee of the Company to the full extent permitted by the Articles of Incorporation and By- Laws of Big O Tires, Inc. 8. Confidentiality: I agree that I will treat as private and privileged any trade secrets and other information, data, figures, projections, estimates, customer lists, price lists, internal procedures, and the like and I will not release any such information to any person, firm, corporation or other entity, either by statement, deposition or as a witness, except upon direct written authority of a member of the Office of the CEO of Big O Tires, Inc. and Big O Tires, Inc. shall be entitled to an injunction by any competent court to enjoin and restrain the unauthorized disclosures of such information. This information will also include, without limitation, that which has been furnished to me by Big O with respect to its products and their marketing, distribution, pricing and application, that is confidential or proprietary and or which is subject to Copyright and Trademark protections. I agree that I will not at any time talk about, write about or otherwise publicize the terms or existence of this agreement with Big O Tires, Inc. or any fact concerning its negotiation, execution or implementation except as may be necessary to discuss such with my attorney or tax advisor. I will not testify or give evidence in any forum concerning my employment or termination of employment with Big O Tires, Inc. unless required by law. 9. Release: (a) In further consideration of the rights and obligations created by this Agreement, the receipt and sufficiency of which are hereby acknowledged, I, for myself, my heirs, personal representatives, successors and assigns, hereby fully and forever release and discharge Big O, its subsidiaries, affiliated, and each of them, as well as their officers, directors, shareholders, employees, agents, attorneys, successors, and assigns, from any and all claims, demands, obligations, actions, liabilities, and damages of every kind and nature whatsoever, at law or in equity, known or unknown, suspected or unsuspected, that I may now have or claim at any future time to have, based in whole or in part upon any act or omission through the date of my resignation from employment with Big O, including without limitation those claims, demands, obligations, actions, liabilities, and damages arising from relating to or based upon my employment with Big O or separation from employment with Big O, except as provided herein. I do not release Big O from obligations under the severance package or the indemnification described above. 2 (b) I agree that the release in subparagraph 9 (a) includes but is not limited to an express waiver of rights and claims under federal and state statutes that prohibit employment discrimination on the basis of sex, race, national origin, religion, disability and age, such as the Age Discrimination in Employment Act of 1987, Title VII of the Civil Rights Act of 1964, as amended, the Rehabilitation Act of 1973, the Americans With Disabilities Act, the Family and Medical Leave Act, the Equal Pay Act, and the Colorado Civil Rights Act, as well as all common law rights and claims, such as breach of contract, express or implied, tort, whether negligent or intentional, constructive discharge, and wrongful discharge. I agree that the benefits under this Agreement, which I accept by signing this Agreement and to which I would not otherwise be entitled, have value to me. I, after having been advised to consult with an attorney, affirm that I have been offered at least 21 days in which to consider executing this Agreement. I am further aware of my right to revoke the waiver of claims within 7 days after signing this Agreement. If I revoke the waiver of claims contained in this paragraph within 7 days after signing this letter, I shall immediately return to Big O all sums I have received pursuant to this Agreement and in that event this Agreement shall be of no further force or effect. (c) It is intended that this release be construed in the broadest possible manner, to further the intention of the parties that all potential disputes between them arising our of or connected to my employment with Big O be forever resolved. 10. Release by Big O: In consideration of the rights and obligations created by this Agreement, the receipt and sufficiency of which are hereby acknowledged, Big O, for itself, its subsidiaries, affiliates, and each of them as well as their officers, directors, shareholders, employees, agents, attorneys, successors and assigns, hereby fully and forever releases and discharges me, my heirs, personal representatives, successors and assigns, from any and all claims, demands, obligations, actions, liabilities and damages of every kind and nature whatsoever, at law or in equity, known or unknown, suspected or unsuspected that Big O may now have or claim at any future time to have, based in whole or in part upon any act or omission through the date of my separation from employment with Big O, including without limitation those claims, demands, obligations, actions, liabilities, and damages arising from, relating to or based upon my employment with Big O or separation from employment with Big O. Yours very truly, /s/ David W. Dwyer -------------------- David W. Dwyer Accepted, Big O Tires, Inc. by: /s/ Horst K. Mehlfeldt ----------------------- By: Horst K. Mehlfeldt Vice Chairman encl. 3 EX-10.77 18 REV CREDIT AGREEMENT Exhibit 10.77 REVOLVING CREDIT AGREEMENT DATED AS OF JANUARY 23, 1995 AMONG BIG O TIRES, INC., THE AFFILIATE BORROWERS, THE BORROWING BASE PARTIES, THE LENDERS AND THE FIRST NATIONAL BANK OF CHICAGO, AS ISSUER AND AS AGENT
TABLE OF CONTENTS ARTICLE I DEFINITIONS................................................................. 1 ARTICLE II THE CREDITS................................................................. 15 2.1. Commitment.................................................................. 15 2.2 Revolving Credit Loans...................................................... 16 2.2.1. Ratable Loans............................................................... 16 2.2.2. Types of Advances........................................................... 16 2.2.3. Minimum Amount of Each Advance.............................................. 16 2.2.4. Principal Payments.......................................................... 16 2.2.5. Method of Selecting Types and Interest Periods for New Advances.......................................... 16 2.2.6. Conversion and Continuation of Outstanding Advances....................................................... 17 2.2.7. Changes in Interest Rate, etc............................................... 18 2.2.8. Interest Payment Dates; Interest and Fee Basis..................................................... 18 2.2.9. Notification of Advances, Interest Rates, Prepayments and Commitment Reductions................................................................. 18 2.2.10. Rates Applicable After Default.............................................. 19 2.3. Facility Letters of Credit.................................................. 19 2.3.1. Obligation to Issue......................................................... 19 2.3.2. Conditions for Issuance..................................................... 19 2.3.3. Procedure for Issuance of Facility.......................................... 19 Letters of Credit.......................................................... 20 2.3.4. Reimbursement Obligations................................................... 21 2.3.5. Participation............................................................... 22 2.3.6. Compensation for Facility Letters of Credit................................. 23 2.3.7. Letter of Credit Collateral Account......................................... 23 2.3.8. Nature of Obligations....................................................... 23 2.4. Commitment Fee; Reductions in Aggregate Commitment; Early Termination Fee... 24 2.5. Method of Payment........................................................... 24 2.6. Notes; Telephonic Notices................................................... 25 2.7. Lending Installations....................................................... 25 2.8. Non-Receipt of Funds by the Agent........................................... 25 2.9. Withholding Tax Exemption................................................... 25 2.10. Application of Payments with Respect to Defaulting Lenders.................. 26 2.11. Borrowing Base; Reporting and Eligibility Requirements..................... 26 2.11.1. Collateral Reports.......................................................... 26 2.11.2. Eligible Accounts........................................................... 27 2.11.3. Account Warranties.......................................................... 28 2.11.4. Verification of Accounts.................................................... 29 2.11.5. Account Covenants........................................................... 29 2.11.6. Appointment of the Agent as Attorney-in-Fact................................ 29 2.11.7. Notice to Account Debtors................................................... 30 2.11.8. Eligible Inventory.......................................................... 30 2.11.9. Inventory Warranties........................................................ 31 2.11.10. Inventory Records........................................................... 31 2.11.11. Safekeeping of Inventory and Inventory Covenants........................................................ 31
2 ARTICLE III CHANGE IN CIRCUMSTANCES..................................................... 32 3.1. Yield Protection............................................................ 32 3.2. Changes in Capital Adequacy Regulations..................................... 32 3.3. Availability of Types of Advances........................................... 33 3.4. Funding Indemnification..................................................... 33 3.5. Lender Statements; Survival of Indemnity.................................... 33 ARTICLE IV CONDITIONS PRECEDENT........................................................ 34 4.1. Initial Credit Extension.................................................... 34 4.2. Each Credit Extension....................................................... 36 4.3. Initial Credit Extension to a new Affiliate Borrower........................ 37 ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE BORROWER.............................. 38 5.1. Corporate Existence and Standing............................................ 38 5.2. Authorization and Validity.................................................. 38 5.3. No Conflict; Government Consent............................................. 38 5.4. Financial Statements........................................................ 39 5.5. Material Adverse Change..................................................... 39 5.6. Taxes....................................................................... 39 5.7. Litigation and Contingent Obligations....................................... 39 5.8. Subsidiaries and Affiliates................................................. 39 5.9. ERISA....................................................................... 40 5.10. Accuracy of Information..................................................... 40 5.11. Regulation U................................................................ 40 5.12. Material Agreements......................................................... 40 5.13. Compliance With Laws........................................................ 40 5.14. Environmental Warranties.................................................... 40 5.15. Ownership of Properties..................................................... 42 5.16. Investment Company Act...................................................... 42 5.17. Public Utility Holding Company Act.......................................... 42 5.18. Insurance................................................................... 42 5.19. Intellectual Property....................................................... 42 5.20. Solvency.................................................................... 42 5.21. Benefits.................................................................... 43
3 ARTICLE V-A REPRESENTATIONS AND WARRANTIES OF AFFILIATE BORROWERS....................... 43 5A.1. Corporate Existence and Standing............................................ 43 5A.2. Authorization and Validity.................................................. 43 5A.3. No Conflict; Government Consent............................................. 43 5A.4. Investment Company Act...................................................... 44 5A.5. Public Utility Holding Company Act.......................................... 44 5A.6. Regulation U................................................................ 44 5A.7. Litigation and Contingent Obligations....................................... 44 5A.8. Material Agreements......................................................... 44 5A.9. Compliance With Laws........................................................ 44 ARTICLE VI COVENANTS................................................................... 45 6.1. Financial Reporting......................................................... 45 6.2. Use of Proceeds............................................................. 47 6.3. Notice of Default........................................................... 47 6.4. Conduct of Business......................................................... 47 6.5. Taxes....................................................................... 48 6.6. Insurance................................................................... 48 6.7. Compliance with Laws; Environmental......................................... 48 6.8. Maintenance of Properties................................................... 48 6.9. Inspection.................................................................. 48 6.10. Dividends................................................................... 48 6.11. Indebtedness................................................................ 49 6.12. Merger...................................................................... 50 6.13. Sale of Assets.............................................................. 50 6.14. Sale of Accounts............................................................ 50 6.15. Sale and Leaseback.......................................................... 50 6.16. Investments and Acquisitions................................................ 50 6.17. Contingent Obligations...................................................... 51 6.18. Liens....................................................................... 52 6.19. Transactions with Affiliates................................................ 53 6.20. Letters of Credit........................................................... 53 6.21. Prepayment of Certain Indebtedness.......................................... 53 6.22. Amendments to Certain Agreements............................................ 54 6.23. Financial Undertakings...................................................... 54 6.24. Financial Covenants......................................................... 54 6.24.1. Leverage Ratio.............................................................. 54 6.24.2. Fixed Charge Coverage Ratio................................................. 54 6.24.3. Minimum Tangible Net Worth.................................................. 54 6.24.4. Cash Flow Coverage Ratio.................................................... 54 6.24.5. Rentals..................................................................... 55 6.24.6. Capital Expenditures........................................................ 55 ARTICLE VII DEFAULTS.................................................................... 55
4 ARTICLE VIII ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES.............................. 58 8.1. Acceleration................................................................ 58 8.2. Amendments.................................................................. 59 8.3. Preservation of Rights...................................................... 60 ARTICLE IX GENERAL PROVISIONS.......................................................... 60 9.1. Survival of Representations................................................. 60 9.2. Governmental Regulation..................................................... 60 9.3. Taxes....................................................................... 60 9.4. Headings.................................................................... 61 9.5. Entire Agreement............................................................ 61 9.6. Several Obligations; Benefits of this Agreement............................. 61 9.7. Expenses; Indemnification................................................... 61 9.8. Numbers of Documents........................................................ 62 9.9. Accounting.................................................................. 62 9.10. Severability of Provisions.................................................. 62 9.11. Nonliability of Lenders..................................................... 62 9.12. Choice of Law............................................................... 62 9.13. Consent to Jurisdiction..................................................... 62 9.14. Waiver of Jury Trial........................................................ 63 9.15. Confidentiality............................................................. 63 9.16. Nonreliance................................................................. 63
5 ARTICLE X THE AGENT................................................................... 63 10.1. Appointment................................................................. 63 10.2. Powers...................................................................... 63 10.3. General Immunity............................................................ 64 10.4. No Responsibility for Loans, Recitals, etc.................................. 64 10.5. Action on Instructions of Lenders........................................... 64 10.6. Employment of Agents and Counsel............................................ 64 10.7. Reliance on Documents; Counsel.............................................. 64 10.8. Agent's Reimbursement and Indemnification................................... 65 10.9. Rights as a Lender.......................................................... 65 10.10. Lender Credit Decision...................................................... 65 10.11. Successor Agent............................................................. 65 10.12. Execution of Collateral Documents........................................... 66 10.13. Collateral Releases......................................................... 66 ARTICLE XI SETOFF; RATABLE PAYMENTS.................................................... 66 11.1. Setoff...................................................................... 66
6 11.2. Ratable Payments............................................................... 66 ARTICLE XII BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS.............................. 67 12.1. Successors and Assigns......................................................... 67 12.2. Participations................................................................. 67 12.2.1 Permitted Participants; Effect................................................. 67 12.2.2. Voting Rights.................................................................. 68 12.2.3. Benefit of Setoff.............................................................. 68 12.3. Assignments.................................................................... 68 12.3.1. Permitted Assignments.......................................................... 68 12.3.2. Effect; Effective Date......................................................... 69 12.4. Dissemination of Information................................................... 69 12.5. Tax Treatment.................................................................. 69 ARTICLE XIII GUARANTY....................................................................... 70 13.1. Guaranty of Payment and Performance of Obligations of Affiliate Borrowers...... 70 13.2. Borrower's Further Agreements to Pay........................................... 70 13.3. Waivers by Borrower: Agent's and Lenders' Freedom to Act....................... 70 13.4. Unenforceability of Affiliate Borrower Obligations Against Affiliate Borrowers. 71 13.5. Subrogation; Subordination..................................................... 72 13.6. Termination.................................................................... 72 13.7. Effect of Bankruptcy........................................................... 73 13.8. Setoff......................................................................... 73 13.9. Further Assurances............................................................. 73 13.10. Limitation..................................................................... 73 ARTICLE XIV NOTICES........................................................................ 74 ARTICLE XV COUNTERPARTS................................................................... 74
7 EXHIBIT 10.77 BIG O TIRES, INC. REVOLVING CREDIT AGREEMENT This Agreement, dated as of January 23, 1995, is among Big O Tires, Inc., a Nevada corporation, the Affiliate Borrowers, the Borrowing Base Parties, the Lenders and The First National Bank of Chicago, as Issuer and as Agent. The parties hereto agree as follows: ARTICLE I DEFINITIONS ----------- As used in this Agreement: "Account Debtor" means the party which is obligated on or under an Account. "Accounts" means all present and future rights of each Borrowing Base Party to payment for goods sold or leased or for services rendered, which are not evidenced by instruments or chattel paper, whether or not they have been earned by performance. "Accounts Trial Balance" is defined in Section 2.11.1. "Acquisition" means any transaction, or any series of related transactions, consummated on or after the date of this Agreement, by which the Borrower, any of its Subsidiaries or any Credit Party (i) acquires any going business or all or substantially all of the assets of any firm, corporation or division thereof, whether through purchase of assets, merger or otherwise or (ii) directly or indirectly acquires (in one transaction or as the most recent transaction in a series of transactions) at least a majority (in number of votes) of the securities of a corporation which have ordinary voting power for the election of directors (other than securities having such power only by reason of the happening of a contingency) or a majority (by percentage or voting power) of the outstanding partnership interests of a partnership. "Advance" means a borrowing hereunder consisting of the aggregate amount of the several Loans made by the Lenders to a Credit Party of the same Type and, in the case of Eurodollar Advances, for the same Interest Period. "Affiliate" of any Person means any other Person directly or indirectly controlling, controlled by or under common control with such Person. A Person shall be deemed to control another Person if the controlling Person owns 10% or more of any class of voting securities (or other ownership interests) of the controlled Person or possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether through ownership of stock, by contract or otherwise. 8 "Affiliate Borrower" means BODI and, with the consent of the Lenders, any other Affiliate of the Borrower which completes an Affiliate Borrower Counterpart and satisfies the other conditions precedent to an initial Credit Extension to an Affiliate Borrower as set forth in Section 4.3. "Affiliate Borrower Counterpart" means a counterpart signature page in the form of Exhibit "C". "Affiliate Borrower MAE" means, with respect to any Affiliate Borrower, a material adverse effect upon (a) the business, Property, condition (financial or otherwise), results of operations or prospects of such Affiliate Borrower and its Subsidiaries, taken as a whole, (b) the ability of such Affiliate Borrower to perform its obligations under the Loan Documents to which it is a party, or (c) the validity or enforceability (with respect to such Affiliate Borrower) of any of the Loan Documents or the rights or remedies of the Agent or the Lenders thereunder. "Affiliate Borrower Obligations" is defined in Section 13.1. "Agent" means The First National Bank of Chicago in its capacity as agent for the Lenders pursuant to Article X, and not in its individual capacity as a Lender, and any successor Agent appointed pursuant to Article X. "Aggregate Commitment" means the aggregate of the Commitments of all the Lenders, as reduced from time to time pursuant to the terms hereof. "Agreement" means this credit agreement, as it may be amended or modified and in effect from time to time. "Agreement Accounting Principles" means generally accepted accounting principles as in effect from time to time, applied in a manner consistent with that used in preparing the financial statements referred to in Section 5.4. "Alternate Base Rate" means, for any day, a rate of interest per annum equal to the higher of (i) the Corporate Base Rate for such day and (ii) the sum of Federal Funds Effective Rate for such day plus 1/2% per annum. "Article" means an article of this Agreement unless another document is specifically referenced. "Authorized Officer" means (i) with respect to the Borrower, any of the President, Chief Financial Officer, Secretary, Treasurer or Corporate Controller of the Borrower, acting singly, (ii) with respect to BODI, any of the President, Secretary, Treasurer or Corporate Controller of BODI, acting singly, and (iii) with respect to any other Affiliate Borrower, such 9 persons or the incumbents of such offices as are designated by such Affiliate Borrower in writing at the time it completes its Affiliate Borrower Counterpart. "Barclays Loan Agreement" is defined in Section 4.1. "Big O Entities" means the Borrower, its Subsidiaries, the Affiliate Borrowers and the Borrowing Base Parties. "BODI" means Big O Development, Inc., a Colorado corporation and a Subsidiary of the Borrower. "Borrower" means Big O Tires, Inc., a Nevada corporation, and its permitted successors and assigns. "Borrower Security Agreement" means that certain Pledge and Security Agreement dated as of January 23, 1995 between the Borrower and the Agent securing the Credit Extensions hereunder. "Borrowing Base" means, on any date of determination, an amount equal to the sum of: (i) 85% of the difference of (u) the face amount (less the most recently calculated average discounts, credits and allowances which may be taken by or granted to Account Debtors in connection therewith) then outstanding under Eligible Accounts minus (v) Stipulated Account Reserves, plus (ii) 65% of the difference of (w) Eligible Class I Inventory minus (x) Stipulated Inventory Reserves relating to Class I Inventory, plus (iii) 40% of the difference of (y) Eligible Class II Inventory minus (z) Stipulated Inventory Reserves relating to Class II Inventory (provided that, notwithstanding any other provision of this definition, the Inventory component of the Borrowing Base arrived at as a result of the calculations in clauses (ii) and (iii) may not comprise more than 80% of the Borrowing Base), all as evidenced by the most recent Borrowing Base Certificate. "Borrowing Base Certificate" is defined in Section 2.11.1. "Borrowing Base Parties" means the Borrower and Idaho. "Borrowing Date" means a date on which an Advance is made hereunder. "Borrowing Notice" is defined in Section 2.2.5. 10 "Business Day" means (i) with respect to any borrowing, payment or rate selection of Eurodollar Advances, a day (other than a Saturday or Sunday) on which banks generally are open in Chicago and New York for the conduct of substantially all of their commercial lending activities and on which dealings in United States dollars are carried on in the London interbank market and (ii) for all other purposes, a day (other than a Saturday or Sunday) on which banks generally are open in Chicago for the conduct of substantially all of their commercial lending activities. "Capital Expenditures" of a Person means the aggregate amount of all purchases or acquisitions of items considered to be capital items under Agreement Accounting Principles, including, without limitation, all expenditures relating to Property, plant or equipment which would be capitalized on a balance sheet of such Person in accordance with Agreement Accounting Principles, but excluding any such expenditures for real estate development activities of BODI relating to new retail store locations. "Capitalized Lease Obligations" of a Person means, without duplication, any rental obligation which under Agreement Accounting Principles is or will be required to be capitalized on a balance sheet of the Borrower or any Subsidiary, or for which the amount of the asset and liability thereunder as if so capitalized should be disclosed in a note to such balance sheet, in each case taken at the amount thereof account for as indebtedness (net of interest expense) in accordance with Agreement Accounting Principles. "Cash Flow Coverage Ratio" means, for any period of determination, the ratio of (x) the sum of (i) Net Income or deficit, as the case may be, plus (ii) depreciation and amortization expense and other non-cash charges to Net Income, plus or minus, as the case may be (iii) changes in working capital (excluding any such changes resulting from restricted cash proceeds of the notes issued pursuant to the indenture referred to in Section 4.1(xv)) to (y) Indebtedness (long and short term), in each case calculated for the Borrower and its Subsidiaries on a consolidated basis in accordance with Agreement Accounting Principles. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended from time to time. "CERCLIS" means the Comprehensive Environmental Response Compensation Liability Information System List, as amended from time to time. "Change in Control" means (i) the acquisition by any Person, or two or more Persons acting in concert (other than the Big O Tires, Inc. Employee Stock Ownership Plan or other Persons approved by the Lenders), of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of 20% or more of the outstanding shares of voting stock of the Borrower; or (ii) the Borrower shall cease to own, free and clear of all Liens or other encumbrances, at least 50% of the outstanding shares of voting stock or other controlling interests of any Affiliate Borrower on a fully diluted basis. 11 "Class I Inventory" means all Inventory which is new tires, used tires, seconds and retreads, wheels and wheel accessories, shock absorbers, struts and coils. "Class II Inventory" means all Inventory other than Class I Inventory. "Closing Date" means the date upon which the Agent determines that the conditions precedent set forth in Sections 4.1 and 4.2 have been fulfilled or waived with respect to the initial Credit Extension. "Code" means the Internal Revenue Code of 1986, as amended, reformed or otherwise modified from time to time. "Collateral" means all of the "Collateral" under and as defined in each of the Collateral Documents. "Collateral Documents" means, collectively, the Borrower Security Agreement, the Idaho Security Agreement and such other mortgages, security agreements, pledge agreements and other documents relating to collateral for the Credit Extensions hereunder as may be executed from time to time by the Borrower or any Affiliate of the Borrower. "Commitment" means, for each Lender, the obligation of such Lender to make Loans and participate in Facility Letters of Credit not exceeding the amount set forth opposite its signature below or as set forth in any Notice of Assignment relating to any assignment that has become effective pursuant to Section 12.3.2, as such amount may be modified from time to time pursuant to the terms hereof. "Compliance Certificate" means a compliance certificate, in substantially the form of Exhibit "D" hereto, with appropriate insertions, signed by the Borrower's chief financial officer, showing the calculations necessary to determine compliance with this Agreement and stating that no Default or Unmatured Default exists, or if any Default or Unmatured Default exists, describing the nature and status thereof and any action the Borrower is taking or proposes to take with respect thereto. "Condemnation" is defined in Section 7.8. "Contingent Obligation" of a Person means any agreement, undertaking or arrangement by which such Person assumes, guarantees, endorses, contingently agrees to purchase or provide funds for the payment of, or otherwise becomes or is contingently liable upon, the obligation or liability of any other Person, or agrees to maintain the net worth or working capital or other financial condition of any other Person, or otherwise assures any creditor of such other Person against loss, including, without limitation, any comfort letter, operating agreement, take-or-pay contract or application for a Letter of Credit. 12 "Controlled Group" means all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower or any of its Subsidiaries, are treated as a single employer under Section 414 of the Code. "Conversion/Continuation Notice" is defined in Section 2.2.6. "Corporate Base Rate" means a rate per annum equal to the corporate base rate of interest announced by First Chicago from time to time, changing when and as said corporate base rate changes. "Credit Extension" means the making of any Advance or the issuance of any Facility Letter of Credit pursuant to this Agreement. "Credit Extension Date" means the date on which any Credit Extension is made hereunder. "Credit Parties" means the Borrower, BODI and any other Affiliate Borrower. "Default" means an event described in Article VII. "Defaulting Lender" means any Lender that (i) on any Borrowing Date fails to make available to the Agent such Lender's Loans required to be made to the Borrower on such Borrowing Date or (ii) shall not have made a payment to the Issuer pursuant to Section 2.3.5(b). Once a Lender becomes a Defaulting Lender, such Lender shall continue as a Defaulting Lender until such time as such Defaulting Lender makes available to the Agent, the amount of such Defaulting Lender's Loans and/or to the Issuer, such payments requested by the Issuer together with all other amounts required to be paid to the Agent and/or the Issuer pursuant to this Agreement. "Eligible Account" is defined in Section 2.11.2. "Eligible Class I Inventory" means all Eligible Inventory which is Class I Inventory. "Eligible Class II Inventory" means all Eligible Inventory which is Class II Inventory. "Eligible Inventory" is defined in Section 2.11.8. "Environmental Laws" means all applicable federal, state or local statutes, laws, ordinances, codes, rules, regulations and guidelines (including consent decrees and administrative orders) relating to public health and safety and protection of the environment. "EBITDA" means for any period Consolidated Net Income plus (i) current and deferred income taxes, plus (ii) the amount of all amortization of intangibles and depreciation 13 that was deducted in arriving at Net Income, plus (iii) interest expense (including interest expense associated with Capitalized Lease Obligations), plus (iv) one-time charges incurred in 1994 with respect to prepayment penalties in connection with the refinancing of the Borrower's Boise facility, plus (v) one- time charges (in an amount not to exceed $200,000) resulting from the Borrower's termination of the Barclays Loan Agreement. "ERISA" means the Employee Retirement Income Security Act of l974, as amended from time to time, and any rule or regulation issued thereunder. "Eurodollar Advance" means an Advance which bears interest at the Eurodollar Rate. "Eurodollar Base Rate" means, with respect to a Eurodollar Advance for the relevant Interest Period, the rate at which deposits in U.S. dollars are offered by First Chicago to first-class banks in the London interbank market at approximately 11 a.m. (London time) two Business Days prior to the first day of such Interest Period, in the approximate amount of First Chicago's relevant Eurodollar Loan and having a maturity approximately equal to such Interest Period. "Eurodollar Loan" means a Loan which bears interest at the Eurodollar Rate. "Eurodollar Rate" means, with respect to a Eurodollar Advance for the relevant Interest Period, the sum of (i) the quotient of (a) the Eurodollar Base Rate applicable to such Interest Period, divided by (b) one minus the Reserve Requirement (expressed as a decimal) applicable to such Interest Period, plus (ii) 2.25% per annum. The Eurodollar Rate shall be rounded to the next higher multiple of 1/16 of 1% if the rate is not such a multiple. "Facility Letter of Credit" means a Letter of Credit issued by the Issuer pursuant to Section 2.3. "Facility Letter of Credit Obligations" means, as at the time of determination thereof, all liabilities, whether actual or contingent, of the Borrower with respect to the Facility Letters of Credit, including the sum of (a) Reimbursement Obligations and (b) the aggregate undrawn face amount of the outstanding Facility Letters of Credit. "Facility Termination Date" means the third anniversary of the Closing Date. "Federal Funds Effective Rate" means, for any day, an interest rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published for such day (or, if such day is not a Business Day, for the immediately preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations at approximately 10 a.m. (Chicago time) on such day on such transactions received by the Agent from three Federal funds brokers of recognized standing selected by the Agent in its sole discretion. 14 "Financial Undertaking" of a Person means (i) any repurchase obligation or liability of such Person or any of its Subsidiaries with respect to accounts or notes receivable sold by such Person or any of its Subsidiaries, (ii) any sale and leaseback transactions which do not create a liability on the consolidated balance sheet of such Person and its Subsidiaries, (iii) any other transaction which is the functional equivalent of or takes the place of borrowing but which does not constitute a liability on the consolidated balance sheets of such Person and its Subsidiaries or (iv) any agreements, devices or arrangements designed to protect at least one of the parties thereto from the fluctuations of interest rates, exchange rates or forward rates applicable to such party's assets, liabilities or exchange transactions, including, but not limited to, interest rate exchange agreements, forward currency exchange agreements, interest rate cap or collar protection agreements, forward rate currency or interest rate options. "First Chicago" means The First National Bank of Chicago in its individual capacity, and its successors. "Fixed Charges" means, for any period, the sum of (i) interest expense (including interest expense associated with Capitalized Lease Obligations), both paid and accrued, plus (ii) Rentals, plus (iii) dividends payable on preferred stock of the Borrower and its Subsidiaries for such period. "Fixed Charge Coverage Ratio" means, for any period of determination, the ratio of (x) the sum of (i) EBITDA plus (ii) Rentals to (y) the sum of (iii) Fixed Charges plus (iv) current maturities of long-term Indebtedness. "Floating Rate" means, for any day, a rate per annum equal to the Alternate Base Rate for such day, changing when and as the Alternate Base Rate changes. "Floating Rate Advance" means an Advance which bears interest at the Floating Rate. "Floating Rate Loan" means a Loan which bears interest at the Floating Rate. "Hazardous Material" means (i) any "hazardous substance", as defined by CERCLA; (ii) any "hazardous waste", as defined by the Resource Conservation and Recovery Act, as amended; (iii) any petroleum product (but specifically excluding tires from this clause (iii)); or (iv) any pollutant or contaminant or hazardous, dangerous or toxic chemical, material or substance within the meaning of any other federal, state or local law, regulation, ordinance or requirement (including consent decrees and administrative orders) relating to or imposing liability or standards of conduct concerning any hazardous, toxic or dangerous waste, substance or material, all as amended or hereafter amended, but specifically excluding from such definition all motor oil, antifreeze, hydraulic fluids and lead weights packaged for retail sale to customers and all motor oil stored in bulk containers for use in retail operations. "Idaho" means Big O Tire of Idaho, Inc., an Idaho corporation. 15 "Idaho Security Agreement" means that certain Pledge and Security Agreement dated as of January 23, 1995 between Idaho and the Agent securing the Credit Extensions hereunder. "Indebtedness" of a Person means, without duplication, such Person's (i) obligations for borrowed money, (ii) obligations representing the deferred purchase price of Property or services (other than accounts payable arising in the ordinary course of such Person's business payable on terms customary in the trade), (iii) obligations, whether or not assumed, secured by Liens or payable out of the proceeds or production from property now or hereafter owned or acquired by such Person, (iv) obligations which are evidenced by notes, acceptances, or other instruments, (v) Capitalized Lease Obligations and (vi) net liabilities under interest rate swap, exchange or cap agreements. "Intangible Assets" means the amount (to the extent reflected in determining consolidated stockholders' equity) of (i) all write-ups subsequent to December 31, 1993 in the book value of any asset owned by the Borrower or a Subsidiary, (ii) all Investments in unconsolidated Subsidiaries and all equity Investments in Persons which are not Subsidiaries (but specifically excluding equity Investments in BODI and in joint venture Affiliates of BODI made for the purpose of developing real estate for new retail stores) and (iii) all unamortized debt discount and expense, unamortized deferred charges, goodwill, patents, trademarks, service marks, trade names, copyrights, organization or developmental expenses and other intangible items. "Interest Period" means a period of one, two, three or six months commencing on a Business Day selected by the applicable Credit Party pursuant to this Agreement. Such Interest Period shall end on (but exclude) the day which corresponds numerically to such date one, two, three or six months thereafter, provided, however, that if there is no such numerically corresponding day in such next, second, third or sixth succeeding month, such Interest Period shall end on the last Business Day of such next, second, third or sixth succeeding month. If an Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the next succeeding Business Day, provided, however, that if said next succeeding Business Day falls in a new calendar month, such Interest Period shall end on the immediately preceding Business Day. "Inventory" means any and all goods which are held by the Borrowing Base Parties for sale or lease or to be furnished under any contract of service, wherever located, whether now owned or hereafter acquired by any Borrowing Base Party, including, without limitation, all raw materials, supplies, materials used or consumed in any Borrowing Base Party's business, work in process, finished goods, goods in transit, and all property the sale or other disposition of which has given rise to Accounts and which has been returned to or repossessed or stopped in transit by any Borrowing Base Party. "Investment" of a Person means any loan, advance, extension of credit (other than accounts receivable arising in the ordinary course of business on terms customary in the 16 trade), deposit account or contribution of capital by such Person to any other Person or any investment in, or purchase or other acquisition of, the stock, partnership interests, notes, debentures or other securities of any other Person made by such Person. "Issuer" means The First National Bank of Chicago, in its capacity as issuer of Facility Letters of Credit under Section 2.3. "LC Issuance Request" is defined in Section 2.3.3. "Lenders" means the lending institutions listed on the signature pages of this Agreement and their respective successors and assigns. "Lending Installation" means, with respect to a Lender or the Agent, any office, branch, subsidiary or affiliate of such Lender or the Agent. "Letter of Credit" of a Person means a letter of credit or similar instrument which is issued upon the application of such Person or upon which such Person is an account party or for which such Person is in any way liable. "Letter of Credit Collateral Account" is defined in Section 2.3.7. "Leverage Ratio" means, as at any date of determination thereof, the ratio of (i) Indebtedness (long and short-term) of the Borrower and its Subsidiaries plus the aggregate principal amount of Advances to Affiliate Borrowers hereunder on such date to (ii) Total Capitalization of the Borrower and its Subsidiaries plus the aggregate principal amount of Advances to Affiliate Borrowers hereunder on such date, all calculated on a consolidated basis in accordance with Agreement Accounting Principles. "Lien" means any lien (statutory or other), mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, the interest of a vendor or lessor under any conditional sale, Capitalized Lease or other title retention agreement). "Loan" means, with respect to a Lender, such Lender's portion of any Advance. "Loan Documents" means this Agreement, the Notes and the Collateral Documents. "Material Adverse Effect" means a material adverse effect on (i) the business, Property, condition (financial or otherwise), results of operations, or prospects of the Borrower and its Subsidiaries taken as a whole, (ii) the ability of the Borrower or any other Credit Party to perform its obligations under the Loan Documents, or (iii) the validity or enforceability of any of the Loan Documents or the rights or remedies of the Agent or the Lenders thereunder. 17 "Multiemployer Plan" means a Plan maintained pursuant to a collective bargaining agreement or any other arrangement to which the Borrower or any member of the Controlled Group is a party to which more than one employer is obligated to make contributions. "Net Income" means, for any period, the consolidated net income (or net loss) of the Borrower and its Subsidiaries for such period, but excluding: (a) proceeds of insurance policies; (b) net after tax gains arising from (i) any write-up of assets or (ii) the acquisition of debt securities for a cost less than principal and accrued interest; (c) net after tax gains arising from (i) the sale or other disposition of capital assets or (ii) extraordinary items or transactions of a non- recurring or non-operating and material nature (including net operating loss carry forward credits) or relating to the discontinuance of operations; (d) net income, prior to the date of acquisition, of any other Person acquired in any manner; and (e) any deferred credit (or amortization of a deferred credit) arising from the acquisition in any manner of any other Person. "Note" means a promissory note, in substantially the form of Exhibit "A" hereto, duly executed by a Credit Party and payable to the order of a Lender in the amount of its Commitment, including any amendment, modification, renewal or replacement of such promissory note. "Notice of Assignment" is defined in Section 12.3.2. "Obligations" means all unpaid principal of and accrued and unpaid interest on the Notes, all accrued and unpaid fees, all Facility Letter of Credit Obligations and all expenses, reimbursements, indemnities and other obligations of the Borrower or any Affiliate Borrower to the Lenders or to any Lender, the Agent or any indemnified party hereunder arising under the Loan Documents. "Participants" is defined in Section 12.2.1. "Payment Date" means the last day of each March, June, September and December. "PBGC" means the Pension Benefit Guaranty Corporation, or any successor thereto. "Permitted Construction Take-Out Indebtedness" means Indebtedness of the Borrower (i) which refinances Indebtedness entered into to finance the construction, acquisition or 18 remodeling of retail store locations, (ii) which finances retail store locations for which the Borrower has entered into written leases with the franchisees operating such locations which leases contain rental payments sufficient to cover the principal and interest on such Indebtedness, (iii) which contains covenants and other terms not more restrictive than those contained in this Agreement, provided that such Indebtedness may be priced at the then-current market rates, may contain loan-to-value ratios and may require the grant of a mortgage on the retail store locations financed thereby and (iv) which does not exceed, in aggregate principal amount, (x) $2,500,000 at any time prior to the first anniversary of the Closing Date, (y) $4,500,000 at any time from the first anniversary of the Closing Date to but excluding the second anniversary of the Closing Date and (z) an amount to be agreed upon by the Agent, the Lenders and the Borrower for all periods on and after the second anniversary of the Closing Date. "Person" means any natural person, corporation, firm, joint venture, partnership, association, enterprise, trust or other entity or organization, or any government or political subdivision or any agency, department or instrumentality thereof. "Plan" means an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code as to which the Borrower or any member of the Controlled Group may have any liability. "Property" of a Person means any and all property, whether real, personal, tangible, intangible, or mixed, of such Person, or other assets owned, leased or operated by such Person. "Pro Rata Share" means, for each Lender, the ratio of such Lender's Commitment to the Aggregate Commitment. "Purchasers" is defined in Section 12.3.1. "Rate Hedging Obligations" of a Person means any and all obligations of such Person, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor), under (i) any and all agreements, devices or arrangements designed to protect at least one of the parties thereto from the fluctuations of interest rates, exchange rates or forward rates applicable to such party's assets, liabilities or exchange transactions, including, but not limited to, dollar-denominated or cross- currency interest rate exchange agreements, forward currency exchange agreements, interest rate cap or collar protection agreements, forward rate currency or interest rate options, puts and warrants, and (ii) any and all cancellations, buy backs, reversals, terminations or assignments of any of the foregoing. "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor thereto or other regulation or official 19 interpretation of said Board of Governors relating to reserve requirements applicable to member banks of the Federal Reserve System. "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor or other regulation or official interpretation of said Board of Governors relating to the extension of credit by banks for the purpose of purchasing or carrying margin stocks applicable to member banks of the Federal Reserve System. "Reimbursement Obligations" means, at any time, the aggregate of the obligations of the Borrower to the Lenders and the Issuer in respect of all unreimbursed payments or disbursements made by the Issuer and the Lenders under or in respect of the Facility Letters of Credit (including, without limitation, the Borrower's obligation to reimburse the Issuer for draws on Facility Letters of Credit pursuant to Section 2.3.4(b)). "Rentals" of a Person means the total amount paid or to be paid in any fiscal year by a lessee under any lease having a remaining term in excess of one year from the end of the lessee's most recently completed fiscal year, including, without limitation, amounts paid on account of maintenance, ordinary repairs, insurance, and other similar charges to the extent such amounts are paid to the lessor or its designate(s), but excluding Capitalized Lease Obligations. To the extent rental payments are received on leased property, they will be credited against Rentals on each property to the extent they have not been included in revenue, all in accordance with Agreement Accounting Principles. "Reportable Event" means a reportable event as defined in Section 4043 of ERISA and the regulations issued under such section, with respect to a Plan, excluding, however, such events as to which the PBGC by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event, provided, however, that a failure to meet the minimum funding standard of Section 412 of the Code and of Section 302 of ERISA shall be a Reportable Event regardless of the issuance of any such waiver of the notice requirement in accordance with either Section 4043(a) of ERISA or Section 412(d) of the Code. "Required Lenders" means Lenders in the aggregate having at least 66-2/3% of the Aggregate Commitment or, if the Aggregate Commitment has been terminated, Lenders in the aggregate holding at least 66-2/3% of the aggregate unpaid principal amount of the outstanding Advances. "Reserve Requirement" means the maximum aggregate reserve requirement (including all basic, supplemental, marginal and other reserves) which is imposed under Regulation D on Eurocurrency liabilities. "Section" means a numbered section of this Agreement, unless another document is specifically referenced. 20 "Single Employer Plan" means a Plan maintained by the Borrower or any member of the Controlled Group for employees of the Borrower or any member of the Controlled Group. "Stipulated Account Reserves" means, with respect to Accounts of the Borrowing Base Parties, the convention reserve and Warranty Set-Aside. "Stipulated Inventory Reserves" means, with respect to Inventory of the Borrowing Base Parties, the obsolete wheel reserve, unrealized intercompany profits, unamortized price reductions and reserves for write-downs to net realizable value. "Subsidiary" of a Person means (i) any corporation more than 50% of the outstanding securities having ordinary voting power of which shall at the time be owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries, or (ii) any partnership, association, joint venture or similar business organization more than 50% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. Unless otherwise expressly provided, all references herein to a "Subsidiary" shall mean a Subsidiary of the Borrower. "Substantial Portion" means, with respect to the Property of the Borrower and its Subsidiaries, Property which represents more than 10% of the consolidated assets of the Borrower and its Subsidiaries as would be shown in the consolidated financial statements of the Borrower and its Subsidiaries as at the beginning of the four-quarter period ending immediately prior to the quarter in which such determination is made. "Tangible Net Worth" means at any date of determination the consolidated stockholders' equity of the Borrower and its Subsidiaries determined in accordance with Agreement Accounting Principles, less their consolidated Intangible Assets, all determined as of such date. "Total Capitalization" means the sum of (i) Indebtedness of the Borrower and its Subsidiaries plus (ii) the stockholders' equity of the Borrower and its Subsidiaries, all calculated on a consolidated basis in accordance with Agreement Accounting Principles. "Transferee" is defined in Section 12.4. "Type" means, with respect to any Advance, its nature as a Floating Rate Advance or a Eurodollar Advance. "Unfunded Liabilities" means the amount (if any) by which the present value of all vested nonforfeitable benefits under all Single Employer Plans exceeds the fair market value of all such Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plans. 21 "Unmatured Default" means an event which but for the lapse of time or the giving of notice, or both, would constitute a Default. "Warranty Set-Aside" means an amount equal to one-fourth of the total amount of warranty claims paid or received during the twelve-month period preceding the date of determination. "Wholly-Owned Subsidiary" of a Person means (i) any Subsidiary all of the outstanding voting securities of which shall at the time be owned or controlled, directly or indirectly, by such Person or one or more Wholly-Owned Subsidiaries of such Person, or by such Person and one or more Wholly-Owned Subsidiaries of such Person, or (ii) any partnership, association, joint venture or similar business organization 100% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. The foregoing definitions shall be equally applicable to both the singular and plural forms of the defined terms. ARTICLE II THE CREDITS ----------- 2.1. Commitment. (a) From and including the date of this Agreement and prior to the Facility Termination Date, each Lender severally agrees, on the terms and conditions set forth in this Agreement, to make Loans to the Credit Parties and to participate in Facility Letters of Credit for the account of the Borrower from time to time in amounts not to exceed in the aggregate at any one time outstanding the amount of its Commitment. Subject to the terms of this Agreement, the Credit Parties may borrow, repay and reborrow and the Borrower may request the issuance of Facility Letters of Credit at any time prior to the Facility Termination Date. The Commitments to lend and participate in Facility Letters of Credit hereunder shall expire on the Facility Termination Date. (b) Notwithstanding anything to the contrary contained in this Agreement or in any other Loan Document, the sum of (i) the aggregate outstanding principal balance of the Loans plus (ii) the Facility Letter of Credit Obligations shall at no time exceed the lesser of (x) the Borrowing Base (as reflected on the Borrowing Base Certificate most recently delivered to the Agent), or (y) the Aggregate Commitment. The Credit Parties jointly and severally agree that if at any time any such excess shall arise, they shall immediately pay to the Agent (or deposit into the Letter of Credit Collateral Account, to the extent that all Loans have been fully repaid) the amount necessary to eliminate such excess, without presentment, demand, protest or notice of any kind from the Agent or any Lender, all of which the Credit Parties hereby expressly waive. 22 (c) In addition to the foregoing provisions of this Section 2.1, the aggregate outstanding principal balance of Loans to Affiliate Borrowers shall not exceed (x) $6,000,000 for the period from the Closing Date to the first anniversary of the Closing Date, (y) $8,000,000 for the period from the first anniversary of the Closing Date to the second anniversary of the Closing Date and (z) $10,000,000 thereafter. 2.2. Revolving Credit Loans. ---------------------- 2.2.1. Ratable Loans. Each Advance hereunder shall consist of Loans made from the several Lenders ratably in proportion to the ratio that their respective Commitments bear to the Aggregate Commitment. 2.2.2. Types of Advances. The Advances may be Floating Rate Advances or Eurodollar Advances, or a combination thereof, selected by the applicable Credit Party in accordance with Sections 2.2.5 and 2.2.6. 2.2.3. Minimum Amount of Each Advance. Each Eurodollar Advance shall be in the minimum amount of $1,000,000 (and in multiples of $100,000 if in excess thereof), and each Floating Rate Advance shall be in the minimum amount of $50,000 (and in multiples of $25,000 if in excess thereof), provided, however, that any Floating Rate Advance may be in the amount of the unused Aggregate Commitment. 2.2.4. Principal Payments. (a) Optional. Each Credit Party may from time to time pay, without penalty or premium, all of its outstanding Floating Rate Advances, or, in a minimum aggregate amount of $50,000, any portion of its outstanding Floating Rate Advances upon two Business Days' prior notice to the Agent. A Eurodollar Advance may not be paid prior to the last day of the applicable Interest Period. (b) Mandatory. Upon any sale, transfer or other disposition permitted under Section 6.13(iii), the Credit Party receiving the proceeds thereof shall make a mandatory repayment of Advances in an amount equal to 100% of the proceeds of such sale, transfer or other disposition (net of expenses), provided that if the development costs for such real property were financed from (or, if applicable, if the take-out financing for such development financing was obtained from) external sources other than Advances hereunder, 100% of the proceeds of any such sale, transfer or other disposition (net of expenses) shall be used by the applicable Credit Party to repay the financing from such external sources, and any excess remaining shall be used to make a mandatory repayment of Advances. Upon any sale of notes receivable permitted under Section 6.14, the Borrower shall make a mandatory repayment of Advances in an amount equal to 100% of the proceeds of such sale (net of expenses). 2.2.5. Method of Selecting Types and Interest Periods for New Advances. Any Credit Party which wishes to request an Advance hereunder shall select the Type 23 of Advance and, in the case of each Eurodollar Advance, the Interest Period applicable to each Advance from time to time. Such Credit Party shall give the Agent irrevocable notice (a "Borrowing Notice") not later than 10:00 a.m. (Chicago time) on the Borrowing Date of each Floating Rate Advance and three Business Days before the Borrowing Date for each Eurodollar Advance, specifying: (i) the Borrowing Date, which shall be a Business Day, of such Advance, (ii) the aggregate amount of such Advance, (iii) the Type of Advance selected, and (iv) in the case of each Eurodollar Advance, the Interest Period applicable thereto. Not later than noon (Chicago time) on each Borrowing Date, each Lender shall make available its Loan or Loans, in funds immediately available in Chicago to the Agent at its address specified pursuant to Article XIV. The Agent will make the funds so received from the Lenders available to the applicable Credit Party at the Agent's aforesaid address. 2.2.6. Conversion and Continuation of Outstanding Advances. Floating Rate Advances shall continue as Floating Rate Advances unless and until such Floating Rate Advances are converted into Eurodollar Advances. Each Eurodollar Advance of any Type shall continue as a Eurodollar Advance of such Type until the end of the then applicable Interest Period therefor, at which time such Eurodollar Advance shall be automatically converted into a Floating Rate Advance unless the applicable Credit Party shall have given the Agent a Conversion/Continuation Notice (as defined below) requesting that, at the end of such Interest Period, such Eurodollar Advance either continue as a Eurodollar Advance of such Type for the same or another Interest Period or be converted into an Advance of another Type. Subject to the terms of Section 2.2.3, the applicable Credit Party may elect from time to time to convert all or any part of an Advance of any Type into any other Type or Types of Advances; provided that any conversion of any Eurodollar Advance shall be made on, and only on, the last day of the Interest Period applicable thereto. The applicable Credit Party shall give the Agent irrevocable notice (a "Conversion/Continuation Notice") of each conversion of an Advance or continuation of a Eurodollar Advance not later than 10:00 a.m. (Chicago time) at least one Business Day, in the case of a conversion into a Floating Rate Advance, or three Business Days, in the case of a conversion into or continuation of a Eurodollar Advance, prior to the date of the requested conversion or continuation, specifying: (i) the requested date which shall be a Business Day, of such conversion or continuation; 24 (ii) the aggregate amount and Type of the Advance which is to be converted or continued; and (iii) the amount and Type(s) of Advance(s) into which such Advance is to be converted or continued and, in the case of a conversion into or continuation of a Eurodollar Advance, the duration of the Interest Period applicable thereto. 2.2.7. Changes in Interest Rate, etc. Each Floating Rate Advance shall bear interest on the outstanding principal amount thereof, for each day from and including the date such Advance is made or is converted from a Eurodollar Advance into a Floating Rate Advance pursuant to Section 2.2.6 to but excluding the date it becomes due or is converted into a Eurodollar Advance pursuant to Section 2.2.6, at a rate per annum equal to the Floating Rate for such day. Changes in the rate of interest on that portion of any Advance maintained as a Floating Rate Advance will take effect simultaneously with each change in the Alternate Base Rate. Each Eurodollar Advance shall bear interest from and including the first day of the Interest Period applicable thereto to (but not including) the last day of such Interest Period at the interest rate determined as applicable to such Eurodollar Advance. No Interest Period may end after the Facility Termination Date. 2.2.8. Interest Payment Dates; Interest and Fee Basis. Interest accrued on each Floating Rate Advance shall be payable on each Payment Date, commencing with the first such date to occur after the date hereof and at maturity. Interest accrued on each Eurodollar Advance shall be payable on the last day of its applicable Interest Period, on any date on which the Eurodollar Advance is prepaid, whether by acceleration or otherwise, and at maturity. Interest accrued on each Eurodollar Advance having an Interest Period longer than three months shall also be payable on the last day of each three-month interval during such Interest Period. Interest for Eurodollar Advances and commitment fees shall be calculated for actual days elapsed on the basis of a 360-day year. Interest for Floating Rate Advances shall be calculated for actual days elapsed on the basis of a 365/366-day year. Interest shall be payable for the day an Advance is made but not for the day of any payment on the amount paid if payment is received prior to noon (local time) at the place of payment. If any payment of principal of or interest on an Advance shall become due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and, in the case of a principal payment, such extension of time shall be included in computing interest in connection with such payment. 2.2.9. Notification of Advances, Interest Rates, Prepayments and Commitment Reductions. Promptly after receipt thereof, the Agent will notify each Lender of the contents of each Aggregate Commitment reduction notice, Borrowing Notice, Conversion/Continuation Notice, and repayment notice received by it hereunder. The Agent will notify each Lender of the interest rate applicable to each Eurodollar 25 Advance promptly upon determination of such interest rate and will give each Lender prompt notice of each change in the Alternate Base Rate. 2.2.10. Rates Applicable After Default. Notwithstanding anything to the contrary contained in Section 2.2.5 or 2.2.6, during the continuance of a Default or Unmatured Default the Required Lenders may, at their option, by notice to the Borrower (which notice may be revoked at the option of the Required Lenders notwithstanding any provision of Section 8.2 requiring unanimous consent of the Lenders to changes in interest rates), declare that no Advance may be made as, converted into or continued as a Eurodollar Advance. During the continuance of a Default the Required Lenders may, at their option, by notice to the Borrower (which notice may be revoked at the option of the Required Lenders notwithstanding any provision of Section 8.2 requiring unanimous consent of the Lenders to changes in interest rates), declare that (i) each Eurodollar Advance shall bear interest for the remainder of the applicable Interest Period at the rate otherwise applicable to such Interest Period plus 2% per annum and (ii) each Floating Rate Advance shall bear interest at a rate per annum equal to the Floating Rate otherwise applicable to the Floating Rate Advance plus 2% per annum. 2.3. Facility Letters of Credit. -------------------------- 2.3.1. Obligation to Issue. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of the Borrower herein set forth, the Issuer hereby agrees to issue upon the request of and for the account of the Borrower, through such of the Issuer's Lending Installations or Affiliates as the Issuer and the Borrower may jointly agree, one or more Facility Letters of Credit in accordance with this Section 2.3, from time to time during the period, commencing on the Effective Date and ending on the Business Day prior to the Facility Termination Date. 2.3.2. Conditions for Issuance. In addition to being subject to the satisfaction of the conditions contained in Section 4.2, the obligation of the Issuer to issue any Facility Letter of Credit is subject to the satisfaction in full of the following conditions: (i) the aggregate maximum amount then available for drawing under Facility Letters of Credit issued by the Issuer, after giving effect to the Facility Letter of Credit requested hereunder, shall not exceed any limit imposed by law or regulation upon the Issuer; (ii) after giving effect to the requested issuance of any Facility Letter of Credit, the sum of (a) the Facility Letter of Credit Obligations plus (b) the total aggregate unpaid principal balance of the Advances does not 26 exceed the lesser of (x) the Borrowing Base and (y) the Aggregate Commitment; (iii) the requested Facility Letter of Credit has an expiration date not later than the earlier of (x) the Business Day prior to the Facility Termination Date and (y) one year after its date of issuance; (iv) the Facility Letter of Credit Obligations, after giving effect to the Facility Letter of Credit requested hereunder, shall not exceed $3,000,000; (v) the Borrower shall have delivered to the Issuer at such times and in such manner as the Issuer may reasonably prescribe such documents and materials as may be required pursuant to the terms of the proposed Facility Letter of Credit and the proposed Facility Letter of Credit shall be satisfactory to the Issuer as to form and content; and (vi) as of the date of issuance, no order, judgment or decree of any court, arbitrator or governmental authority shall purport by its terms to enjoin or restrain the Issuer from issuing the Facility Letter of Credit and no law, rule or regulation applicable to the Issuer and no request or directive (whether or not having the force of law) from any governmental authority with jurisdiction over the Issuer shall prohibit or request that the Issuer refrain from the issuance of Letters of Credit generally or the issuance of that Facility Letter of Credit. 2.3.3. Procedure for Issuance of Facility Letters of Credit. (a) The Borrower shall give the Issuer five Business Days' prior written notice of any requested issuance of a Facility Letter of Credit under this Agreement. Such notice (the "LC Issuance Request") shall be on such standard form as may be prescribed by the Issuer, shall be irrevocable and shall specify the stated amount of the Facility Letter of Credit requested, the effective date (which day shall be a Business Day) of issuance of such requested Facility Letter of Credit, the date on which such requested Facility Letter of Credit is to expire (which date shall be a Business Day and shall in no event be later than the Facility Termination Date), the purpose for which such Facility Letter of Credit is to be issued, and the Person for whose benefit the requested Facility Letter of Credit is to be issued. At the time such LC Issuance Request is delivered, the Borrower shall also provide the Issuer with a copy of the form of the Facility Letter of Credit it is requesting be issued. The Issuer shall promptly forward to the Lenders a copy of the LC Issuance Request. (b) Subject to the terms and conditions of this Section 2.3.3 and provided that the applicable conditions set forth in Sections 4.2 and 2.3.2 hereof have been satisfied, 27 the Issuer shall, on the requested date, issue a Facility Letter of Credit on behalf of the Borrower in accordance with the Issuer's usual and customary business practices. (c) The Issuer shall not extend or amend any Facility Letter of Credit unless the requirements of this Section 2.3.3 are met as though a new Facility Letter of Credit was being requested and issued. 2.3.4. Reimbursement Obligations. (a) The Borrower agrees to pay to the Agent the amount of all Reimbursement Obligations, interest and other amounts payable to the Agent under or in connection with such Facility Letter of Credit immediately when due, irrespective of any claim, set-off, defense or other right which the Borrower or any Subsidiary or Affiliate of the Borrower may have at any time against the Issuer or any other Person, under all circumstances, including without limitation, any of the following circumstances: (i) any lack of validity or enforceability of this Agreement or any of the other Loan Documents; (ii) the existence of any claim, setoff, defense or other right which the Borrower or any Subsidiary or Affiliate of the Borrower may have at any time against a beneficiary named in a Facility Letter of Credit or any transferee of any Facility Letter of Credit (or any Person for whom any such transferee may be acting), the Issuer, any Lender, or any other Person, whether in connection with this Agreement, any Facility Letter of Credit, the transactions contemplated herein or any unrelated transactions (including any underlying transactions between the Borrower, or any Subsidiary or Affiliate of the Borrower and the beneficiary named in any Facility Letter of Credit); (iii) any draft, certificate or any other document presented under the Facility Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect (except to the extent any such invalidity or insufficiency is found in a final judgment of a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of the Agent); (iv) the surrender or impairment of any security for the performance or observance of any of the terms of any of the Loan Documents; (v) the occurrence of any Default or Unmatured Default. (b) The Issuer shall promptly notify the Borrower of any draw under a Facility Letter of Credit. The Borrower shall reimburse the Issuer for the amount of any drawings under a Facility Letter of Credit no later than the Business Day after the payment by the Issuer. Any Reimbursement Obligation with respect to any Facility 28 Letter of Credit shall bear interest from the date of the relevant drawings under the pertinent Facility Letter of Credit at the interest rate for past due Floating Rate Loans calculated in accordance with Section 2.2.10. 2.3.5. Participation. (a) Immediately upon issuance by the Issuer of any Facility Letter of Credit in accordance with the procedures set forth in Section 2.3.3 each Lender shall be deemed to have irrevocably and unconditionally purchased and received from the Issuer, without recourse or warranty, an undivided interest and participation equal to its Pro Rata Share in such Facility Letter of Credit (including, without limitation, all obligations of the Borrower with respect thereto) and any security therefor or guaranty pertaining thereto. (b) In the event that the Issuer makes any payment under any Facility Letter of Credit and the Borrower shall not have repaid such amount to the Issuer pursuant to Section 2.3.4, the Issuer shall promptly notify each Lender of such failure, and each Lender shall promptly and unconditionally pay to the Agent for the account of the Issuer the amount of such Lender's Pro Rata Share of the unreimbursed amount of any such payment. If any Lender fails to make available to the Issuer, any amounts due to the Issuer pursuant to this Section 2.3.5(b), the Issuer shall be entitled to recover such amount, together with interest thereon at the Federal Funds Effective Rate, for the first three Business Days after such Lender receives such notice and thereafter, at the Floating Rate, payable (i) on demand, (ii) by setoff against any payments made to the Issuer for the account of such Lender or (iii) by payment to the Issuer by the Agent of amounts otherwise payable to such Lender under this Agreement. The failure of any Lender to make available to the Agent its Pro Rata Share of the unreimbursed amount of any such payment shall not relieve any other Lender of its obligation hereunder to make available to the Agent its Pro Rata Share of the unreimbursed amount of any payment on the date such payment is to be made, but no Lender shall be responsible for the failure of any other Lender to make available to the Agent its Pro Rata Share of the unreimbursed amount of any payment on the date such payment is to be made. (c) Whenever the Issuer receives a payment on account of a Reimbursement Obligation, including any interest thereon, it shall promptly pay to each Lender which has funded its participating interest therein, in immediately available funds, an amount equal to such Lender's Pro Rata Share thereof. (d) The obligations of a Lender to make payments to the Agent with respect to a Facility Letter of Credit shall be absolute, unconditional and irrevocable, not subject to any counterclaim, set-off, qualification or exception whatsoever and shall be made in accordance with the terms and conditions of this Agreement under all circumstances. (e) In the event any payment by the Borrower or any Subsidiary or Affiliate of the Borrower received by the Agent with respect to a Facility Letter of Credit and 29 distributed by the Agent to the Lenders on account of their participations is thereafter set aside, avoided or recovered from the Agent in connection with any receivership, liquidation, reorganization or bankruptcy proceeding, each Lender which received such distribution shall, upon demand by the Agent, contribute such Lender's Pro Rata Share of the amount set aside, avoided or recovered together with interest at the rate required to be paid by the Agent upon the amount required to be repaid by it. 2.3.6. Compensation for Facility Letters of Credit. (a) The Borrower shall pay to the Issuer, for the ratable benefit of the Lenders, a Facility Letter of Credit fee in the amount of 2.25% per annum on the average daily undrawn amount of all Facility Letters of Credit outstanding, such fee to be paid in arrears on each Payment Date and on the Facility Termination Date. (b) In addition, the Borrower shall pay to the Issuer, for its own account, an issuance fee of $300 for each Facility Letter of Credit issued by it as well as the Issuer's reasonable and customary costs of issuing and servicing the Facility Letters of Credit. 2.3.7. Letter of Credit Collateral Account. The Borrower agrees that it will, until the final expiration date of any Facility Letter of Credit and thereafter as long as any amount is payable to the Lenders in respect of any Facility Letter of Credit, maintain a special collateral account (the "Letter of Credit Collateral Account") at the Agent's office at the address specified pursuant to Article XIV, in the name of such Borrower but under the sole dominion and control of the Agent, for the benefit of the Lenders and in which such Borrower shall have no interest other than as set forth in Section 8.1. The Agent will invest any funds on deposit from time to time in the Letter of Credit Collateral Account in certificates of deposit of the Agent having a maturity not exceeding 30 days. Nothing in this Section 2.3.7 shall either obligate the Agent to require the Borrower to deposit any funds in the Letter of Credit Collateral Account or limit the right of the Agent to release any funds held in the Letter of Credit Collateral Account other than as required by Section 8.1. 2.3.8. Nature of Obligations. (a) As among the Borrower, the Issuer and the Lenders, the Borrower assumes all risks of the acts and omissions of, or misuse of the Facility Letters of Credit by, the respective beneficiaries of the Facility Letters of Credit (except such as are found in a final judgment by a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of the Issuer). In furtherance and not in limitation of the foregoing, the Issuer and the Lenders shall not be responsible (absent gross negligence or willful misconduct in connection therewith, as determined by the final judgment of a court of competent jurisdiction) for (i) the forms, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for and issuance of any Facility Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) the 30 validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Facility Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (iii) failure of the beneficiary of a Facility Letter of Credit to comply fully with conditions required in order to draw upon such Facility Letter of Credit; (iv) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise; (v) errors in interpretation of technical terms; (vi) misapplication by the beneficiary of a Facility Letter of Credit of the proceeds of any drawing under such Facility Letter of Credit; (viii) any consequences arising from causes beyond the control of the Issuer or the Lenders. (b) In furtherance and extension and not in limitation of the specific provisions hereinabove set forth, any action taken or omitted by the Issuer or any Lender under or in connection with the Facility Letters of Credit or any related certificates, if taken or omitted in good faith, shall not put the Issuer or such Lender under any resulting liability to the Borrower or relieve the Borrower of any of its obligations hereunder to the Issuer, the Agent or any Lender. 2.4. Commitment Fee; Reductions in Aggregate Commitment; Early Termination Fee. The Borrower agrees to pay to the Agent for the account of each Lender a commitment fee of 0.375% per annum on the daily unused portion of such Lender's Commitment from the date hereof to and including the Facility Termination Date, payable on each Payment Date hereafter and on the Facility Termination Date. The Borrower may permanently reduce the Aggregate Commitment in whole, or in part ratably among the Lenders in integral multiples of $1,000,000, upon at least three Business Days' written notice to the Agent, which notice shall specify the amount of any such reduction, provided, however, that (i) the amount of the Aggregate Commitment may not be reduced below the aggregate principal amount of the outstanding Advances and (ii) the amount of the Aggregate Commitment may not be reduced below $10,000,000 prior to the first anniversary of the Closing Date. All accrued commitment fees shall be payable on the effective date of any termination of the obligations of the Lenders to make Credit Extensions hereunder. If the obligations of the Lenders to make Credit Extensions hereunder are terminated by the Borrower prior to the first anniversary of the Closing Date, the Borrower will pay to the Agent for the ratable account of the Lenders a non-refundable early termination fee in the amount of $50,000. 2.5. Method of Payment. All payments of the Obligations hereunder shall be made, without setoff, deduction, or counterclaim, in immediately available funds to the Agent at the Agent's address specified pursuant to Article XIV, or at any other Lending Installation of the Agent specified in writing by the Agent to the Borrower, by noon (local time) on the date when due and shall be applied ratably by the Agent among the Lenders. Each payment delivered to the Agent for the account of any Lender shall be delivered promptly by the Agent to such Lender in the same type of funds that the Agent received at its address specified pursuant to Article XIV or at any Lending Installation specified in a notice received by the Agent from such Lender. The Agent is hereby authorized to charge the account of the 31 Borrower or other applicable Credit Party maintained with First Chicago for each payment of principal, interest and fees as it becomes due hereunder. 2.6. Notes; Telephonic Notices. Each Lender is hereby authorized to record the principal amount of each of its Loans and each repayment on the schedule attached to its Notes, provided, however, that the failure to so record shall not affect the applicable Credit Party's obligations under each such Note. Each Credit Party hereby authorizes the Lenders and the Agent to extend, convert or continue Advances, effect selections of Types of Advances and to transfer funds based on telephonic notices made by any person or persons the Agent or any Lender in good faith believes to be acting on behalf of such Credit Party. Each such Credit Party agrees to deliver promptly to the Agent a written confirmation, if such confirmation is requested by the Agent or any Lender, of each telephonic notice signed by one of its Authorized Officers. If the written confirmation differs in any material respect from the action taken by the Agent and the Lenders, the records of the Agent and the Lenders shall govern absent manifest error. 2.7. Lending Installations. Each Lender may book its Loans and participations in Facility Letters of Credit at any Lending Installation selected by such Lender and may change its Lending Installation from time to time. All terms of this Agreement shall apply to any such Lending Installation and the Notes shall be deemed held by each Lender for the benefit of such Lending Installation. Each Lender may, by written or telex notice to the Agent and the Borrower, designate a Lending Installation through which Loans will be made and participations in Facility Letters of Credit purchased by it and for whose account Loan payments are to be made. 2.8. Non-Receipt of Funds by the Agent. Unless the applicable Credit Party or a Lender, as the case may be, notifies the Agent prior to the date on which it is scheduled to make payment to the Agent of (i) in the case of a Lender, the proceeds of a Loan or a payment under Section 2.3.5(b) or (ii) in the case of a Credit Party, a payment of principal, interest, fees or Reimbursement Obligations to the Agent for the account of the Lenders, that it does not intend to make such payment, the Agent may assume that such payment has been made. The Agent may, but shall not be obligated to, make the amount of such payment available to the intended recipient in reliance upon such assumption. If such Lender or the applicable Credit Party, as the case may be, has not in fact made such payment to the Agent, the recipient of such payment shall, on demand by the Agent, repay to the Agent the amount so made available together with interest thereon in respect of each day during the period commencing on the date such amount was so made available by the Agent until the date the Agent recovers such amount at a rate per annum equal to (i) in the case of payment by a Lender, the Federal Funds Effective Rate for such day or (ii) in the case of payment by a Credit Party, the interest rate applicable to the relevant Loan or Reimbursement Obligation. 2.9. Withholding Tax Exemption. At least five Business Days prior to the first date on which interest or fees are payable hereunder for the account of any Lender, each Lender that is not incorporated under the laws of the United States of America, or a state thereof, 32 agrees that it will deliver to each of the Borrower and the Agent two duly completed copies of United States Internal Revenue Service Form 1001 or 4224, certifying in either case that such Lender is entitled to receive payments under this Agreement and the Notes without deduction or withholding of any United States federal income taxes. Each Lender which so delivers a Form 1001 or 4224 further undertakes to deliver to each of the Borrower and the Agent two additional copies of such form (or a successor form) on or before the date that such form expires (currently, three successive calendar years for Form 1001 and one calendar year for Form 4224) or becomes obsolete or after the occurrence of any event requiring a change in the most recent forms so delivered by it, and such amendments thereto or extensions or renewals thereof as may be reasonably requested by the Borrower or the Agent, in each case certifying that such Lender is entitled to receive payments under this Agreement and the Notes without deduction or withholding of any United States federal income taxes, unless an event (including without limitation any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form with respect to it and such Lender advises the Borrower and the Agent that it is not capable of receiving payments without any deduction or withholding of United States federal income tax. 2.10. Application of Payments with Respect to Defaulting Lenders. No payments of principal, interest or fees delivered to the Agent for the account of any Defaulting Lender shall be delivered by the Agent to such Defaulting Lender. Instead, such payments shall, for so long as such Defaulting Lender shall be a Defaulting Lender, be held by the Agent, and the Agent is hereby authorized and directed by all parties hereto to hold such funds in escrow and apply such funds as follows: (i) First, if applicable to any payments due to the Issuer pursuant to ----- Section 2.3.5(b); and (ii) Second, to Loans required to be made by such Defaulting Lender on any Borrowing Date to the extent such Defaulting Lender fails to make such Loans. Notwithstanding the foregoing, upon the termination of the Aggregate Commitment and the payment and performance of all of the Obligations (other than those owing to a Defaulting Lender), any funds then held in escrow by the Agent pursuant to the preceding sentence shall be distributed to each Defaulting Lender, pro rata in proportion to amounts that would be due to each Defaulting Lender but for the fact that it is a Defaulting Lender. 2.11. Borrowing Base; Reporting and Eligibility Requirements. ------------------------------------------------------- 2.11.1. Collateral Reports. The Borrower shall submit to the Agent, at the time of the initial Credit Extension hereunder and thereafter not later than the tenth (10th) day of each month, a borrowing base certificate, in substantially the form of Exhibit "E" hereto (the "Borrowing Base Certificate"), duly executed by the President, 33 Chief Financial Officer or Corporate Controller of the Borrower and each other Borrowing Base Party, which Borrowing Base Certificate shall cover all of the Borrowing Base Parties. The Borrowing Base Certificate shall include, as of the last Business Day of the immediately preceding fiscal month: (i) an aged trial balance of Accounts (the "Accounts Trial Balance"); (ii) a schedule of Inventory owned by the Borrowing Base Parties and in their respective possession valued at FIFO cost with such reserves as the Agent deems appropriate; and (iii) the outstanding principal balance of the Obligations. The Borrowing Base Certificates shall contain such additional information as the Agent or any Lender shall reasonably require, and the Borrower and each other Borrowing Base Party agrees to provide more frequent reports regarding the Collateral from time to time upon request of the Agent or any Lender. The Borrower and each other Borrowing Base Party shall furnish copies of any other reports or information, in a form and with such specificity as is satisfactory to the Agent, concerning Accounts included, described or referred to in the Borrowing Base Certificates and any other documents in connection therewith requested by the Agent. 2.11.2. Eligible Accounts. "Eligible Accounts" shall mean and include all Accounts except: (i) Accounts which remain unpaid ninety (90) days after the due date unless such Accounts are generated by the snow tire and chain dating program, in which case such Accounts shall be "Eligible Accounts" unless they remain unpaid on the earlier of ninety (90) days after the due date or one hundred eighty (180) days after the invoice date, provided that the Borrower and the Lenders may agree in writing to other dating programs which vary the provisions of this clause (i); (ii) all Accounts owing by a single Account Debtor, including a currently scheduled Account, if fifteen percent (15%) or more of the balance owing by such Account Debtor to the Borrowing Base Parties remains unpaid as specified in clause (i) of this Section 2.11.2; (iii) Accounts with respect to which the Account Debtor is a director, officer, employee, Subsidiary or Affiliate of any Borrowing Base Party; (iv) Accounts with respect to which the Account Debtor is an entity owned or controlled by a director, officer, employee, Subsidiary or Affiliate of any Borrowing Base Party, unless (1) neither such entity nor such director, officer, employee, Subsidiary or Affiliate has control (as defined in the definition of "Affiliate") over the relevant Borrowing Base Party and (2) such Account is subject to the Borrowing Base Party's normal credit and collection policies and the terms of credit extended to such Account Debtor are no more favorable than those routinely extended to other Account Debtors in the ordinary course of business; (v) Accounts with respect to which the Account Debtor is the United States of America or any department, agency or instrumentality thereof; (vi) Accounts with respect to which the Account Debtor is not a resident of the United States unless the Account Debtor has supplied the applicable Borrowing Base Party with an irrevocable Letter of Credit, issued by a financial institution satisfactory to Agent, sufficient to cover such account in form and substance satisfactory to the Agent; (vii) Accounts with respect to which the Account Debtor has asserted or has a right to assert a counterclaim or setoff or which are the subject of pending or 34 threatened litigation or other legal challenge; (viii) Accounts for which the prospect of payment or performance by the Account Debtor is or will be impaired as determined by the Agent in the exercise of its reasonable discretion; (ix) Accounts with respect to which the Agent does not have a first and valid fully perfected security interest; (x) Accounts with respect to which the Account Debtor is the subject of bankruptcy or a similar insolvency proceeding or has made an assignment for the benefit of creditors or whose assets have been conveyed to a receiver or trustee; (xi) Accounts with respect to which the Account Debtor's obligation to pay the Account is conditional upon the Account Debtor's approval or is otherwise subject to any repurchase obligation or return right, as with sales made on a bill-and-hold, guaranteed sale, sale-and-return, sale on approval or consignment basis; (xii) Accounts to the extent that the Account Debtor's indebtedness to the applicable Borrowing Base Party exceeds a credit limit determined by the Agent in the Agent's sole discretion; (xiii) Accounts with respect to which the Account Debtor is located in Minnesota (or any other state which may from time to time enact a comparable statute requiring the filing of a notice of business activities report or similar form) unless the applicable Borrowing Base Party has received a certificate of authority to do business and is in good standing in such states, or the applicable Borrowing Base Party has filed a Notice of Business Activities Report or similar required report with the appropriate governmental authority in such State for the then current year; (xiv) Accounts comprised of service charges owing to a Borrowing Base Party and (xv) Accounts which the Agent reasonably determines to be ineligible upon written notice to the applicable Borrowing Base Party. In the event that a previously scheduled Eligible Account ceases to be an Eligible Account under the above described criteria, the Agent shall notify the applicable Borrowing Base Party thereof. 2.11.3. Account Warranties. With respect to Accounts scheduled, listed or referred to on the initial Accounts Trial Balance or on any subsequent Accounts Trial Balance, the applicable Borrowing Base Party warrants and represents to the Agent and the Lenders that: (i) they are genuine, are in all respects what they purport to be, and are not evidenced by a judgment; (ii) they represent undisputed, bona fide transactions completed in accordance with the terms and provisions contained in the documents delivered to the Agent with respect thereto; (iii) the amounts shown on the respective Accounts Trial Balance, the applicable Borrowing Base Party's books and records and all invoices and statements which may be delivered to the Agent with respect thereto are actually and absolutely owing to the applicable Borrowing Base Party and are not in any way contingent; (iv) there are no set offs, counterclaims or disputes existing or asserted with respect thereto and the applicable Borrowing Base Party has not made any agreement with any Account Debtor for any deduction therefrom except a discount or allowance allowed by the applicable Borrowing Base Party in the ordinary course of its business for prompt payment; (v) there are no facts, events or occurrences which in any way impair the validity or enforcement thereof or tend to reduce the amount payable thereunder as shown on the respective Accounts Trial Balance, the applicable Borrowing Base Party's books and records and all 35 invoices and statements delivered to the Agent with respect thereto; (vi) to the best of the applicable Borrowing Base Party's knowledge, all Account Debtors have the capacity to contract and are solvent; (vii) the services furnished and/or goods sold giving rise thereto are not subject to any Lien, except that of the Agent, for the ratable benefit of the Lenders, and except as specifically permitted herein; (viii) the applicable Borrowing Base Party has no knowledge of any fact or circumstance which would impair the validity or collectability thereof; and (ix) to the best of the applicable Borrowing Base Party's knowledge, there are no proceedings or actions which are threatened or pending against any Account Debtor which might result in any material adverse change in such Account Debtor's financial condition. 2.11.4. Verification of Accounts. The Agent shall have the right, at any time or times hereafter, in the Agent's name or in the name of a nominee of the Agent, to verify the validity, amount or any other matter relating to any Accounts, by mail, telephone, telegraph or otherwise. 2.11.5. Account Covenants. The applicable Borrowing Base Party shall, promptly upon learning thereof: (i) inform the Agent in writing, of any material delay in the applicable Borrowing Base Party's performance of any of its obligations to any Account Debtors or of any assertion of any claims, offsets or counterclaims by any Account Debtors; (ii) furnish to and inform the Agent of all material adverse information relating to the financial condition of any material Account Debtor; and (iii) in addition to its normal reporting on the Borrowing Base Certificate, notify the Agent in writing if (x) any of its then existing material Accounts scheduled to the Agent with respect to which the Lenders have made an advance are no longer Eligible Accounts or (y) any of its then existing Accounts scheduled to the Agent with respect to which the Lenders have made an advance are no longer Eligible Accounts if such change in the status of such Accounts would cause a Default or Unmatured Default. 2.11.6. Appointment of the Agent as Attorney-in-Fact. The Borrower and each other Borrowing Base Party hereby irrevocably designates, makes, constitutes and appoints the Agent (and all persons designated by the Agent), after the occurrence of a Default or Unmatured Default, as its true and lawful attorney-in-fact, and authorizes the Agent, in the Borrower's or each such Borrowing Base Party's or the Agent's name, to: (i) demand payment of Accounts; (ii) enforce payment of Accounts by legal proceedings or otherwise; (iii) exercise all of the applicable Borrowing Base Party's rights and remedies with respect to proceedings brought to collect an Account; (iv) sell or assign any Account upon such terms, for such amount and at such time or times as the Agent deems advisable; (v) settle, adjust, compromise, extend or renew an Account; (vi) discharge and release any Account; (vii) take control in any manner of any item of payment or proceeds thereof; (viii) prepare, file and sign the applicable Borrowing Base Party's name on any proof of claim in bankruptcy or other similar document against an Account Debtor; (ix) endorse the applicable Borrowing Base Party's name upon any items of payment or proceeds thereof and deposit the same in 36 the Agent's account on account of the Obligations; (x) endorse the applicable Borrowing Base Party's name upon any chattel paper, document, instrument, invoice, or similar document or agreement relating to any Account or any goods pertaining thereto; (xi) sign the applicable Borrowing Base Party's name on any verification of Accounts and notices thereof to Account Debtors; (xii) notify the post office authorities to change the address for delivery of applicable Borrowing Base Party's mail to an address designated by Agent, have access to any lock box or postal box into which any of the applicable Borrowing Base Party's mail is deposited, and open and dispose of all mail addressed to applicable Borrowing Base Party and (xiii) do all acts and things which are necessary, in the Agent's sole discretion, to fulfill the Borrower's and the other Borrowing Base Parties' obligations under this Agreement. 2.11.7. Notice to Account Debtors. The Agent may, in its sole discretion, at any time or times after a Default has occurred and is continuing, and without prior notice to the applicable Borrowing Base Party, notify any or all Account Debtors that the Accounts have been assigned to the Agent and that the Agent, for the ratable benefit of the Lenders, has a security interest therein. The Agent may direct any or all Account Debtors to make all payments upon the Accounts directly to the Agent. The Agent shall furnish the applicable Borrowing Base Party with a copy of such notice. 2.11.8. Eligible Inventory. "Eligible Inventory" shall mean and include all Inventory except for any Inventory: (i) which is obsolete (but without duplication of the obsolete wheel reserve in calculating the Borrowing Base), not in good condition, or not either currently usable or currently salable in the ordinary course of applicable Borrowing Base Party's business; (ii) which is in transit (other than any transit between different warehouses used by the Borrowing Base Parties and with respect to which the Agent has been granted a lien on the inventory therein) or is located on premises other than those listed on Schedule "1" provided that, (x) where such premises are not owned or leased by a Borrowing Base Party, such Inventory shall only be Eligible Inventory if it is held by a bailee pursuant to a bailee letter agreement acceptable to the Lenders (of which a copy has been furnished to the Lenders) and (y) where such premises are leased by a Borrowing Base Party, such Inventory shall only be Eligible Inventory if the applicable Borrowing Base Party has furnished to the Lenders landlord waivers acceptable to the Lenders; (iii) which is on consignment; (iv) which is located outside of the United States of America; (v) which is classified as "unidentified material" in the applicable Borrowing Base Party's data processing system; (vi) which consists of supplies or packaging materials including, without limitation, labels, nameplates, cartons, inserts, and fasteners; (vii) which the Agent determines, in the exercise of reasonable discretion and in accordance with the Agent's customary business practices, to be unacceptable due to age, type, category and/or quantity; (viii) with respect to which the Agent, for the ratable benefit of the Lenders, does not have a first and valid fully perfected security interest; and (ix) which the Agent reasonably determines to be ineligible upon written notice to the applicable 37 Borrowing Base Party. In the event that previously scheduled Eligible Inventory ceases to be Eligible Inventory, the Agent shall notify the applicable Borrowing Base Party thereof immediately. 2.11.9. Inventory Warranties. With respect to Inventory scheduled, listed or referred to in any Borrowing Base Certificate, the applicable Borrowing Base Party warrants that (i) it is located on the premises listed on Schedule "1" and is not in transit; (ii) it is not subject to any Lien whatsoever except for the security interest granted to the Agent, for the ratable benefit of the Lenders, and except as specifically permitted herein; and (iii) it is of good and merchantable quality, free from any defect which would affect the market value of such Inventory. 2.11.10. Inventory Records. The Borrower shall at all times hereafter maintain a perpetual inventory of its own and each other Borrowing Base Party's Inventory, keeping correct and accurate records itemizing and describing the kind, type, quality and quantity of Inventory and of Eligible Inventory, the applicable Borrowing Base Party's cost therefor (such cost information to be adjusted for certain markups and other charges) and upon the Agent's demand therefor, daily withdrawals therefrom and additions thereto, all of which records shall be available during the Borrower's usual business hours on reasonable demand to any of the Borrower's officers, employees or agents. The Borrower or the relevant Borrowing Base Party shall conduct a physical count of the Inventory at least once each year and, promptly following such physical count of the Inventory, the Borrower shall supply the Agent with a report in a form and with such specificity as may be satisfactory to the Agent concerning such physical count of the Inventory. 2.11.11. Safekeeping of Inventory and Inventory Covenants. Neither the Agent nor any Lender shall be responsible for: (i) the safekeeping of the Inventory; (ii) any loss or damage to the Inventory; (iii) any diminution in the value of the Inventory; or (iv) any act or default of any carrier, warehouseman, bailee, forwarding agency or any other Person. All risk of loss, damage, destruction or diminution in value of the Inventory shall be borne by the applicable Borrowing Base Party. No Inventory shall be at any time or times hereafter stored with a bailee, warehouseman, consignee or similar third party without the Agent's prior written consent. 38 ARTICLE III CHANGE IN CIRCUMSTANCES ----------------------- 3.1. Yield Protection. If any law or any governmental or quasi- governmental rule, regulation, policy, guideline or directive (whether or not having the force of law), or any interpretation thereof, or the compliance of any Lender (which term, for the purposes of this Article III, shall be deemed to include the Issuer in such capacity) therewith, (i) subjects any Lender or any applicable Lending Installation to any tax, duty, charge or withholding on or from payments due from any Credit Party (excluding (x) federal taxation of the overall net income of any Lender or applicable Lending Installation and (y) overall net income and franchise or other similar taxes imposed on any Lender by a jurisdiction under the laws of which such Lender is organized, in which its principal office is located, or in which its applicable Lending Installation is located), or changes the basis of taxation of payments to any Lender in respect of its Loans or Facility Letters of Credit (or participations therein) or other amounts due it hereunder, or (ii) imposes or increases or deems applicable any reserve, assessment, insurance charge, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender or any applicable Lending Installation (other than reserves and assessments taken into account in determining the interest rate applicable to Eurodollar Advances), or (iii) imposes any other condition the result of which is to increase the cost to any Lender or any applicable Lending Installation of making, funding or maintaining loans or letters of credit (or participations therein) or reduces any amount receivable by any Lender or any applicable Lending Installation in connection with loans or letters of credit (or participations therein), or requires any Lender or any applicable Lending Installation to make any payment calculated by reference to the amount of loans or letters of credit (or participations therein) held or interest received by it, by an amount deemed material by such Lender, then, within 15 days of demand by such Lender, the Borrower shall pay such Lender that portion of such increased expense incurred or reduction in an amount received which such Lender determines is attributable to making, issuing, funding and maintaining its Loans and Facility Letters of Credit (or participations therein) and its Commitment. 3.2. Changes in Capital Adequacy Regulations. If a Lender determines the amount of capital required or expected to be maintained by such Lender, any Lending Installation of such Lender or any corporation controlling such Lender is increased as a result of a Change, 39 then, within 15 days of demand by such Lender, the Borrower shall pay such Lender the amount necessary to compensate for any shortfall in the rate of return on the portion of such increased capital which such Lender determines is attributable to this Agreement, its Loans and Facility Letters of Credit (or participations therein) or its obligation to make Loans and issue or participate in Facility Letters of Credit hereunder (after taking into account such Lender's policies as to capital adequacy). "Change" means (i) any change after the date of this Agreement in the Risk-Based Capital Guidelines or (ii) any adoption of or change in any other law, governmental or quasi-governmental rule, regulation, policy, guideline, interpretation, or directive (whether or not having the force of law) after the date of this Agreement which affects the amount of capital required or expected to be maintained by any Lender or any Lending Installation or any corporation controlling any Lender. "Risk-Based Capital Guidelines" means (i) the risk-based capital guidelines in effect in the United States on the date of this Agreement, including transition rules, and (ii) the corresponding capital regulations promulgated by regulatory authorities outside the United States implementing the July 1988 report of the Basle Committee on Banking Regulation and Supervisory Practices Entitled "International Convergence of Capital Measurements and Capital Standards," including transition rules, and any amendments to such regulations adopted prior to the date of this Agreement. 3.3. Availability of Types of Advances. If any Lender determines that maintenance of its Eurodollar Loans at a suitable Lending Installation would violate any applicable law, rule, regulation, or directive, whether or not having the force of law, or if the Required Lenders determine that (i) deposits of a type and maturity appropriate to match fund Eurodollar Advances are not available or (ii) the interest rate applicable to a Type of Advance does not accurately reflect the cost of making or maintaining such Advance, then the Agent shall suspend the availability of the affected Type of Advance and require any Eurodollar Advances of the affected Type to be repaid. 3.4. Funding Indemnification. If any payment of a Eurodollar Advance occurs on a date which is not the last day of the applicable Interest Period, whether because of acceleration, prepayment or otherwise, or a Eurodollar Advance is not made on the date specified by a Credit Party for any reason other than default by the Lenders, the applicable Credit Party will indemnify each Lender for any loss or cost incurred by it resulting therefrom, including, without limitation, any loss or cost in liquidating or employing deposits acquired to fund or maintain the Eurodollar Advance. 3.5. Lender Statements; Survival of Indemnity. To the extent reasonably possible, each Lender shall designate an alternate Lending Installation with respect to its Eurodollar Loans to reduce any liability of any Credit Party to such Lender under Sections 3.1 and 3.2 or to avoid the unavailability of a Type of Advance under Section 3.3, so long as such designation is not disadvantageous to such Lender. Each Lender shall deliver a written statement of such Lender as to the amount due, if any, under Sections 3.1, 3.2 or 3.4. Such written statement shall set forth in reasonable detail the calculations upon which such Lender determined such amount and shall be final, conclusive and binding on the Credit Parties in the 40 absence of manifest error. Determination of amounts payable under such Sections in connection with a Eurodollar Loan shall be calculated as though each Lender funded its Eurodollar Loan through the purchase of a deposit of the type and maturity corresponding to the deposit used as a reference in determining the Eurodollar Rate applicable to such Loan, whether in fact that is the case or not. Unless otherwise provided herein, the amount specified in the written statement shall be payable on demand after receipt by the applicable Credit Party of the written statement. The obligations of the Credit Parties under Sections 3.1, 3.2 and 3.4 shall survive payment of the Obligations and termination of this Agreement. ARTICLE IV CONDITIONS PRECEDENT -------------------- 4.1. Initial Credit Extension. The Lenders shall not be required to make the initial Credit Extension hereunder unless the Borrower has furnished to the Agent with sufficient copies for the Lenders: (i) Copies of the articles of incorporation of each Credit Party and of each Borrowing Base Party, together with all amendments, and a certificate of good standing for each Credit Party and each Borrowing Base Party, all certified by the appropriate governmental officer in each such entity's jurisdiction of incorporation. (ii) Copies, certified by the Secretary or Assistant Secretary of each Credit Party and each Borrowing Base Party, of its by-laws and of its Board of Directors' resolutions (and resolutions of other bodies, if any are deemed necessary by counsel for any Lender) authorizing the execution of the Loan Documents. (iii) An incumbency certificate, executed by the Secretary or Assistant Secretary of each Credit Party and each Borrowing Base Party, which shall identify by name and title and bear the signature of the officers of such entity authorized to sign the Loan Documents and (in the case of Credit Parties) to request Credit Extensions hereunder, upon which certificate the Agent and the Lenders shall be entitled to rely until informed of any change in writing by the applicable entity. (iv) A written opinion of counsel to the Credit Parties and the Borrowing Base Parties, addressed to the Lenders in substantially the form of Exhibit "B" hereto. (v) Notes from each Credit Party payable to the order of each Lender. 41 (vi) Written money transfer instructions, in substantially the form of Exhibit "F" hereto, addressed to the Agent and signed by an Authorized Officer, together with such other related money transfer authorizations as the Agent may have reasonably requested. (vii) Fully executed copies of the Borrower Security Agreement and the Idaho Security Agreement, together with (x) duly executed financing statements to be recorded or filed in the appropriate public offices in each jurisdiction which the Agent deems necessary or advisable to perfect the security interest created thereby, (y) certificates of insurance in respect of the insurance required to be maintained thereunder, including, without limitation, the certificate of insurance described in Section 5.18 and (z) copies of Lien searches, in form and substance satisfactory to the Agent, conducted in each jurisdiction which the Agent deems necessary or advisable. (viii) (x) Landlord waivers, in form and substance satisfactory to the Agent and the Lenders, for any locations in which Inventory is stored and which are not owned by one of the Borrowing Base Parties and (y) bailee agreements, in form and substance satisfactory to the Agent and the Lenders, for any locations in which Inventory is stored and which are not owned or leased by one of the Borrowing Base Parties. (ix) Evidence satisfactory to the Agent and the Lenders that all principal, interest and reimbursement and other obligations under the Loan and Security Agreement dated October 15, 1991 among Barclays Business Credit, Inc., the Borrower, Idaho and Big O Retail Enterprises Inc. (the "Barclays Loan Agreement") have been repaid in full or otherwise terminated, that such agreement has been terminated and is no longer of any force or effect and that any Liens granted in connection therewith have been or will be, concurrently with the initial Credit Extension, released. (x) An initial Borrowing Base Certificate and an initial Compliance Certificate. (xi) Such copies as the Agent may have requested of the Borrower's and its Subsidiaries' filings with the Federal Trade Commission (the "FTC") or state regulatory authorities regarding the franchising practices and procedures of the Borrower and its Subsidiaries, including without limitation any amendments, after the November 19, 1993 amendment, to the Borrower's April 1, 1993 offering circular filed with the FTC. (xii) The report described in Section 6.1(iii) for fiscal 1995. (xiii) An intercreditor and subordination agreement between the Agent and The Kelly-Springfield Tire Company ("Kelly") substantially in the form of the 42 Intercreditor and Subordination Agreement dated as of May 14, 1993 between Kelly and Barclays Business Credit, Inc ("Barclays"). (xiv) A consent, acknowledgment and access agreement among the Agent, The Bank of Cherry Creek, N.A. ("Cherry Creek") and Kenneth B. Buckius, an individual, substantially in the form of the Consent, Acknowledgment and Access Agreement dated as of April 29, 1994 among Barclays, Cherry Creek and Douglas R. Dix ("Dix"), acknowledged and agreed to by each holder of the private placement notes referred to in such agreement. (xv) An amendment to the Indenture, Mortgage, Deed of Trust, Security Agreement, and Financing Statement (Fixture Filing) from the Borrower, BODI and Idaho to Cherry Creek and Dix, dated as of April 27, 1994, amending the reference to the intercreditor agreement described therein to refer to the agreement delivered pursuant to Section 4.1(xiv), together with other necessary conforming changes to such indenture. (xvi) Such other documents as any Lender or its counsel may have reasonably requested. 4.2. Each Credit Extension. The Lenders shall not be required to make any Credit Extension (other than an Advance that, after giving effect thereto and to the application of the proceeds thereof, does not increase the aggregate amount of outstanding Advances) and the Issuer shall not be required to issue any Facility Letter of Credit, unless on the applicable Credit Extension Date: (i) There exists no Default or Unmatured Default. (ii) The representations and warranties contained in Article V are true and correct as of such Credit Extension Date except to the extent any such representation or warranty is stated to relate solely to an earlier date, in which case such representation or warranty shall be true and correct on and as of such earlier date. (iii) If such Credit Extension is an Advance requested by an Affiliate Borrower, (x) the representations and warranties of such Affiliate Borrower contained in Article V-A are true and correct in all material respects as of the date of such Advance, except to the extent any such representation or warranty is stated to relate solely to an earlier date, in which case such representation or warranty shall remain true and correct in all material respects on and as of such earlier date, (y) such Affiliate Borrower has complied with the provisions of Section 4.3 and (z) such Affiliate Borrower has provided the Lenders with a certificate in the form of Exhibit "G" containing information satisfactory to the Lenders regarding the use of the proceeds of such Advance, including, if the proceeds 43 of such Advance are to be used to develop real property, (1) a description of the parcel(s) to be developed (listing all such parcel(s) by location), (2) an estimate of the total amount necessary to develop such parcel(s), and a description of any other sources of such development funds other than Advances hereunder, (3) a breakdown of the portion of such Advance to be used for each such parcel, (4) a cumulative statement of development expenditures to date on each such parcel, including the portion thereof funded with Advances hereunder and (5) an estimated date of completion for each parcel. (iv) If such Credit Extension is an Advance requested by an Affiliate Borrower between June 30 and September 30 of any year, the Borrower has provided the Lenders with a certificate of its chief financial officer stating that the Borrower will have adequate funds for its working capital purposes during such June 30-September 30 period of such year even after taking into account the reduction in availability to the Borrower hereunder as a result of such Advance to such Affiliate Borrower. (v) All legal matters incident to the making of such Credit Extension shall be satisfactory to the Lenders and their counsel. Each Borrowing Notice or LC Issuance Request with respect to each such Credit Extension shall constitute a representation and warranty by (a) the Borrower that the conditions contained in Sections 4.2(i) and (ii) have been satisfied and (b) by the applicable Affiliate Borrower, if such Credit Extension is requested by it, that the conditions contained in Sections 4.2(i) and (iii) have been satisfied. Any Lender may require a duly completed Compliance Certificate and/or a duly completed Borrowing Base Certificate as a condition to making a Credit Extension. 4.3. Initial Credit Extension to a new Affiliate Borrower. The obligations of the Lenders to make Credit Extensions and the Issuer to issue Facility Letters of Credit on the occasion of the first request for either by each Affiliate Borrower other than BODI are subject to the satisfaction of the conditions set forth in Section 4.2 hereof with respect to such Affiliate Borrower and the Borrower and the following additional conditions: (i) The Agent shall have received, in sufficient number of original counterparts for each Lender, an Affiliate Borrower Counterpart dated on or before the date of such first Credit Extension and duly executed by the relevant Affiliate Borrower and the Borrower. (ii) On or before the date of such first Credit Extension, such Affiliate Borrower shall deliver to the Agent (x) its Notes, all of which shall be duly executed by such Affiliate Borrower and dated on or before the date of such Credit Extension, (y) the corporate documentation and certificates identified in 44 Sections 4.1(i)-(iii) with respect to such Affiliate Borrower and (z) a written opinion of counsel addressed to the Lenders, dated the date of such Credit Extension, in form and substance acceptable to the Agent. (iii) The identity, corporate structure and financial condition of the Affiliate Borrower and all legal matters incident to the making of such Credit Extension to such Affiliate Borrower shall be satisfactory to the Lenders and their counsel. ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE BORROWER ---------------------------------------------- The Borrower represents and warrants to the Lenders that: 5.1. Corporate Existence and Standing. Each of the Borrower and its Subsidiaries is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all requisite authority to conduct its business in each jurisdiction in which its business is conducted. 5.2. Authorization and Validity. The Borrower has the corporate power and authority and legal right to execute and deliver the Loan Documents to which it is a party and to perform its obligations thereunder. The execution and delivery by the Borrower of the Loan Documents to which it is a party and the performance of its obligations thereunder have been duly authorized by proper corporate proceedings, and the Loan Documents to which it is a party constitute legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally. 5.3. No Conflict; Government Consent. Neither the execution and delivery by the Borrower of the Loan Documents to which it is a party, nor the consummation of the transactions therein contemplated, nor compliance with the provisions thereof will violate any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on the Borrower or any of its Subsidiaries or the Borrower's or any Subsidiary's articles of incorporation or by-laws or the provisions of any indenture, instrument or agreement to which the Borrower or any of its Subsidiaries is a party or is subject, or by which it, or its Property, is bound, or conflict with or constitute a default thereunder, or result in the creation or imposition of any Lien in, of or on the Property of the Borrower or a Subsidiary pursuant to the terms of any such indenture, instrument or agreement. No order, consent, approval, license, authorization, or validation of, or filing, recording or registration with, or exemption by, any governmental or public body or authority, or any subdivision thereof, is required to 45 authorize, or is required in connection with the execution, delivery and performance of, or the legality, validity, binding effect or enforceability of, any of the Loan Documents to which the Borrower is a party. 5.4. Financial Statements. The December 31, 1993 consolidated financial statements of the Borrower and its Subsidiaries heretofore delivered to the Lenders were prepared in accordance with generally accepted accounting principles in effect on the date such statements were prepared and fairly present the consolidated financial condition and operations of the Borrower and its Subsidiaries at such date and the consolidated results of their operations for the period then ended. 5.5. Material Adverse Change. Since December 31, 1993, there has been no change in the business, Property, prospects, condition (financial or otherwise) or results of operations of the Borrower and its Subsidiaries which could have a Material Adverse Effect, other than matters disclosed in the Borrower's quarterly reports to the U.S. Securities and Exchange Commission on form 10-Q for the quarters ending after such date and prior to the date of this Agreement. 5.6. Taxes. The Borrower's federal tax I.D. number is 87-0392481. Idaho's federal tax I.D. number is 82-0293051. The Borrower and its Subsidiaries have filed all United States federal tax returns and all other tax returns which are required to be filed and have paid all taxes due pursuant to said returns or pursuant to any assessment received by the Borrower or any of its Subsidiaries, except such taxes, if any, as are being contested in good faith and as to which adequate reserves have been provided. The United States income tax returns of the Borrower and its Subsidiaries have been audited by the Internal Revenue Service through the fiscal year ended December 31, 1991. No tax liens have been filed and no claims are being asserted with respect to any such taxes. The charges, accruals and reserves on the books of the Borrower and its Subsidiaries in respect of any taxes or other governmental charges are adequate. 5.7. Litigation and Contingent Obligations. Except as listed on Schedule "2" hereto, there is no litigation, arbitration, governmental investigation, proceeding or inquiry pending or, to the knowledge of any of their officers, threatened against or affecting the Borrower or any of its Subsidiaries which could have a Material Adverse Effect. Other than any liability incident to such litigation, arbitration or proceedings, the Borrower has no material contingent obligations not provided for or disclosed in the financial statements referred to in Section 5.4. 5.8. Subsidiaries and Affiliates. Schedule "3" hereto contains an accurate list of all of the Subsidiaries of the Borrower and of all of the Affiliates of the Borrower in which the Borrower or any Subsidiary owns, directly or indirectly, 25% or more of the voting stock or other ownership interests, setting forth their respective jurisdictions of incorporation or organization and the percentage of their respective capital stock or other ownership interests owned by the Borrower or other Subsidiaries. All of the issued and outstanding shares of 46 capital stock of such Subsidiaries have been duly authorized and issued and are fully paid and non-assessable. 5.9. ERISA. There are no Unfunded Liabilities under any Single Employer Plans. Neither the Borrower nor any other member of the Controlled Group has incurred, or is reasonably expected to incur, any withdrawal liability to Multiemployer Plans. Each Plan complies in all material respects with all applicable requirements of law and regulations, no Reportable Event has occurred with respect to any Plan, neither the Borrower nor any other members of the Controlled Group has withdrawn from any Plan or initiated steps to do so, and no steps have been taken to reorganize or terminate any Plan. 5.10. Accuracy of Information. No information, exhibit or report furnished by any of the Big O Entities to the Agent or to any Lender in connection with the negotiation of, or compliance with, the Loan Documents contained any material misstatement of fact or omitted to state a material fact or any fact necessary to make the statements contained therein not misleading. 5.11. Regulation U. Neither the Borrower nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of purchasing or carrying margin stock (as defined in Regulation U), and such margin stock constitutes less than 25% of those assets of the Borrower and its Subsidiaries which are subject to any limitation on sale, pledge, or other restriction hereunder. 5.12. Material Agreements. Neither the Borrower nor any Subsidiary is a party to any agreement or instrument or subject to any charter or other corporate restriction which could have a Material Adverse Effect. Neither the Borrower nor any Subsidiary is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in (i) any agreement to which it is a party, which default could have a Material Adverse Effect or (ii) any agreement or instrument evidencing or governing Indebtedness or Contingent Obligations. 5.13. Compliance With Laws. The Borrower and its Subsidiaries have complied in all material respects with all applicable statutes, rules, regulations, orders and restrictions of any domestic or foreign government or any instrumentality or agency thereof, having jurisdiction over the conduct of their respective businesses or the ownership of their respective Property. Neither the Borrower nor any Subsidiary has received any notice to the effect that its operations are not in material compliance with any of the requirements of applicable federal, state and local environmental, health and safety statutes and regulations or the subject of any federal or state investigation evaluating whether any remedial action is needed to respond to a release of any toxic or hazardous waste or substance into the environment, which non-compliance or remedial action could have a Material Adverse Effect. 5.14. Environmental Warranties. To the best of the Borrower's knowledge, ------------------------ except as set forth on Schedule "4" hereto: 47 (i) all facilities and property (including underlying groundwater) owned or leased by any Big O Entity have been, and continue to be, owned or leased by such entity in material compliance with all Environmental Laws; (ii) there has been no past, and there are no pending or threatened (a) claims, complaints, notices or requests for information received by any Big O Entity with respect to any alleged violation of any Environmental Law, or (b) complaints, notices or inquiries to any Big O Entity regarding potential liability under any Environmental Law; (iii) there have been no Releases of Hazardous Materials at, on or under any property now or previously owned or leased by any Big O Entity that, singly or in the aggregate, have, or may reasonably be expected to have, a Material Adverse Effect or an Affiliate Borrower MAE; (iv) each Big O Entity has been issued and is in material compliance with all permits, certificates, approvals, licenses and other authorizations relating to environmental matters and necessary or desirable for its businesses; (v) no property now or previously owned or leased by any Big O Entity is listed or proposed for listing (with respect to owned property only) on the National Priorities List pursuant to CERCLA, on the CERCLIS or on any similar state list of sites requiring investigation or clean- up; (vi) there are no underground storage tanks, active or abandoned, including petroleum storage tanks, on or under any property now or previously owned or leased by any Big O Entity that, singly or in the aggregate, have, or may reasonably be expected to have, a Material Adverse Effect or an Affiliate Borrower MAE; (vii) no Big O Entity has directly transported or directly arranged for the transportation of any Hazardous Material to any location which is listed or proposed for listing on the National Priorities List pursuant to CERCLA, on CERCLIS or on any similar state list or which is the subject of federal, state or local enforcement actions or other investigations which may lead to material claims against any Big O Entity for any remedial work, damage to natural resources or personal injury, including, but not limited to, claims under CERCLA; and (viii) there are no polychlorinated biphenyls or friable asbestos present at any property now or previously owned or leased by any Big O Entity that, singly or in the aggregate, have, or may reasonably be expected to have, a Material Adverse Effect or an Affiliate Borrower MAE. 48 5.15. Ownership of Properties. Except as set forth on Schedule "5" hereto, on the date of this Agreement, the Borrower and its Subsidiaries will have good title, free of all Liens other than those permitted by Section 6.18, to all of the Property and assets reflected in the financial statements as owned by it. 5.16. Investment Company Act. Neither the Borrower nor any Subsidiary is an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 5.17. Public Utility Holding Company Act. Neither the Borrower nor any Subsidiary is a "holding company" or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. 5.18. Insurance. The certificate signed by the President, Chief Financial Officer or Corporate Controller of the Borrower, that attests to the existence and adequacy of, and summarizes, the property and casualty insurance program carried by the Big O Entities and that has been furnished by the Borrower to the Agent and the Lenders, is complete and accurate. This summary includes the insurer's or insurers' name(s), policy number(s), expiration date(s), amount(s) of coverage, type(s) of coverage, exclusion(s), and deductibles. This summary also includes similar information, and describes any reserves, relating to any self-insurance program that is in effect. 5.19. Intellectual Property. The Borrower and its Subsidiaries own or possess all of the patents, trademarks, service marks, trade names, copyrights and licenses necessary for the present and planned future conduct of their respective businesses except as set forth on Schedule "6". 5.20. Solvency. (i) Immediately after the consummation of the transactions to occur on the date hereof and immediately following the making of each Credit Extension, if any, made on the date hereof and after giving effect to the application of the proceeds of such Credit Extensions, (a) the fair value of the assets of the Borrower and its Subsidiaries on a consolidated basis, at a fair valuation, will exceed the debts and liabilities, subordinated, contingent or otherwise (taking into account, with respect to all contingent liabilities, the likelihood of such liabilities becoming actual), of the Borrower and its Subsidiaries on a consolidated basis; (b) the present fair saleable value of the property of the Borrower and its Subsidiaries on a consolidated basis will be greater than the amount that will be required to pay the probable liability of the Borrower and its Subsidiaries on a consolidated basis on their debts and other liabilities, subordinated, contingent or otherwise (taking into account, with respect to all contingent liabilities, the likelihood of such liabilities becoming actual), as such debts and other liabilities become absolute and matured; (c) the Borrower and its Subsidiaries on a consolidated basis will be able to pay their debts and liabilities, subordinated, contingent or otherwise (taking into account, with respect to all contingent liabilities, the likelihood of such liabilities becoming actual), as such debts and liabilities become absolute and matured; 49 and (d) the Borrower and its Subsidiaries on a consolidated basis will not have unreasonably small capital with which to conduct the businesses in which they are engaged as such businesses are now conducted and are proposed to be conducted after the date hereof. (ii) The Borrower does not intend to, or to permit any of its Subsidiaries to, and the Borrower does not believe that it or any of its Subsidiaries will, incur debts beyond its ability to pay such debts as they mature, taking into account the timing of and amounts of cash to be received by it or any such Subsidiary and the timing of the amounts of cash to be payable on or in respect of its Indebtedness or the Indebtedness of any such Subsidiary. 5.21. Benefits. Each of the Borrower, its Subsidiaries and the Borrowing Affiliates will benefit from the financing arrangement established by this Agreement. The Borrower acknowledges that, but for the agreement by each Borrowing Base Party to execute and deliver its pledge and security agreement, the Agent and the Lenders would not have made available the credit facilities established hereby on the terms set forth herein. ARTICLE V-A REPRESENTATIONS AND WARRANTIES OF AFFILIATE BORROWERS ----------------------------------------------------- Each Affiliate Borrower represents and warrants to the Lenders as provided in this Article V-A that: 5A.1. Corporate Existence and Standing. Such Affiliate Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all requisite authority to conduct its business in each jurisdiction in which its business is conducted. 5A.2. Authorization and Validity. Such Affiliate Borrower has the corporate power and authority and legal right to execute and deliver the Loan Documents to which it is a party and to perform its obligations thereunder. The execution and delivery by such Affiliate Borrower of the Loan Documents to which it is a party and the performance by it of its obligations thereunder have been duly authorized by proper corporate proceedings, and such Loan Documents constitute legal, valid and binding obligations of such Affiliate Borrower enforceable against such Affiliate Borrower in accordance with their respective terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally. 5A.3. No Conflict; Government Consent. Neither the execution and delivery by such Affiliate Borrower of the Loan Documents to which it is a party, nor the consummation by it of the transactions therein contemplated to be consummated by it, nor compliance by 50 such Affiliate Borrower with the provisions thereof will violate any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on such Affiliate Borrower or its certificate or articles of incorporation or by-laws (or similar documents) or the provisions of any indenture, instrument or agreement to which such Affiliate Borrower is a party or is subject, or by which it, or its Property, is bound, or conflict with or constitute a default thereunder, or result in the creation or imposition of any Lien in, of or on the Property of such Affiliate Borrower pursuant to the terms of any such indenture, instrument or agreement. No order, consent, approval, license, authorization, or validation of, or filing, recording or registration with, or exemption by, any Governmental Agency is required to authorize, or is required in connection with the execution, delivery and performance of, or the legality, validity, binding effect or enforceability of, any of the Loan Documents to which such Affiliate Borrower is a party. 5A.4. Investment Company Act. Such Affiliate Borrower is not an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 5A.5. Public Utility Holding Company Act. Such Affiliate Borrower is not a "holding company" or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. 5A.6. Regulation U. Such Affiliate Borrower is not engaged principally, or as one of its important activities, in the business of purchasing or carrying margin stock (as defined in Regulation U), and such margin stock constitutes less than 25% of those assets of such Affiliate Borrower which are subject to any limitation on sale, pledge, or other restriction hereunder. 5A.7. Litigation and Contingent Obligations. Except as listed on Schedule "2" hereto, there is no litigation, arbitration, governmental investigation, proceeding or inquiry pending or, to the knowledge of any of their officers, threatened against or affecting such Affiliate Borrower which could have an Affiliate Borrower MAE. 5A.8. Material Agreements. Such Affiliate Borrower is not a party to any agreement or instrument or subject to any charter or other corporate restriction which could have an Affiliate Borrower MAE. Such Affiliate Borrower is not in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in (i) any agreement to which it is a party, which default could have an Affiliate Borrower MAE or (ii) any agreement or instrument evidencing or governing Indebtedness or Contingent Obligations. 5A.9. Compliance With Laws. Such Affiliate Borrower has complied with all applicable statutes, rules, regulations, orders and restrictions of any domestic or foreign government or any instrumentality or agency thereof, having jurisdiction over the conduct of 51 its business or the ownership of its Property. Such Affiliate Borrower has not received any notice to the effect that its operations are not in material compliance with any of the requirements of applicable federal, state and local environmental, health and safety statutes and regulations or the subject of any federal or state investigation evaluating whether any remedial action is needed to respond to a release of any toxic or hazardous waste or substance into the environment, which non-compliance or remedial action could have an Affiliate Borrower MAE. ARTICLE VI COVENANTS --------- During the term of this Agreement, unless the Required Lenders shall otherwise consent in writing: 6.1. Financial Reporting. The Borrower will maintain, for itself and each Subsidiary, a system of accounting established and administered in accordance with generally accepted accounting principles, and furnish to the Lenders: (i) Within five days after the earlier of (x) the day the Borrower is required to submit its annual report on form 10-K to the U.S. Securities and Exchange Commission and (y) the day the Borrower actually submits such report, an unqualified (except for qualifications relating to changes in accounting principles or practices reflecting changes in generally accepted principles of accounting and required or approved by the Borrower's independent certified public accountants) audit report certified by independent certified public accountants, acceptable to the Lenders, prepared in accordance with generally accepted accounting principles as in effect at such time on a consolidated and consolidating basis (consolidating statements need not be certified by such accountants) for itself and the Subsidiaries, including balance sheets as of the end of such period, related profit and loss and reconciliation of surplus statements, and a statement of cash flows, accompanied by a certificate of said accountants that, in the course of their examination necessary for their certification of the foregoing, they have obtained no knowledge of any Default or Unmatured Default, or if, in the opinion of such accountants, any Default or Unmatured Default shall exist, stating the nature and status thereof. Any management letter prepared by said accountants in connection with the foregoing annual audit report shall be furnished to the Lenders within five days after it is received by the Borrower. 52 (ii) Within 30 days after the close of each (x) month, for itself and the Subsidiaries, consolidated and consolidating unaudited balance sheets as at the close of each such month and consolidated and consolidating profit and loss statements for such month and for the period from the beginning of such fiscal year to the end of such month, (y) quarter, for itself and the Subsidiaries, a consolidated and consolidating unaudited statement of cash flows for such quarter, together with (in the case of each statement in clause (x)) a comparison of such results to its plan and forecast for such period as set forth in the report for such fiscal year delivered pursuant to Section 6.1(iii), all certified by its chief financial officer. (iii) As soon as available, but in any event not later than December 15 of each year, a copy of the plan and forecast (including a projected consolidated and consolidating balance sheet, income statement and funds flow statement) of the Big O Entities for the following fiscal year, with such projections to be detailed on a month-by-month basis. (iv) Together with the financial statements required hereunder, a Compliance Certificate. (v) Within 270 days after the close of each fiscal year, a statement of the Unfunded Liabilities of each Single Employer Plan, certified as correct by an actuary enrolled under ERISA. (vi) As soon as possible and in any event within 10 days after the Borrower knows that any Reportable Event has occurred with respect to any Plan, a statement, signed by the chief financial officer of the Borrower, describing said Reportable Event and the action which the Borrower proposes to take with respect thereto. (vii) As soon as possible and in any event within 31 days after receipt by any Big O Entity, a copy of (a) any notice or claim to the effect that any Big O Entity is or may be liable to any Person as a result of the release by any Big O Entity or any other Person of any toxic or hazardous waste or substance into the environment, and (b) any notice alleging any violation of any federal, state or local environmental, health or safety law or regulation by any Big O Entity which, in either case, could reasonably be expected to have a Material Adverse Effect or an Affiliate Borrower MAE. (viii) Promptly upon the furnishing thereof to the shareholders of the Borrower, copies of all financial statements, reports and proxy statements so furnished. (ix) Promptly upon the filing thereof, copies of all registration statements and annual, quarterly, monthly or other regular reports which the Borrower or any 53 of its Subsidiaries files with the Securities and Exchange Commission or with the Federal Trade Commission. (x) Within 90 days after the close of each fiscal year of each Affiliate Borrower, for such Affiliate Borrower and its Subsidiaries, consolidated and consolidating unaudited balance sheets as at the close of such fiscal year and consolidated and consolidating profit and loss and reconciliation of surplus statements and a statement of cash flows for such fiscal year, all certified by the chief financial officer of such Affiliate Borrower, provided that, for any Affiliate Borrower which is a Subsidiary of the Borrower, delivery of the financial statements described in Section 6.1(i) shall satisfy the provisions of this clause (x). (xi) The monthly Borrowing Base Certificate required by Section 2.11.1, together with a statement showing the locations of all Inventory included in the Borrowing Base as of the date of such Borrowing Base Certificate. (xii) Such other information (including non-financial information) as the Agent or any Lender may from time to time reasonably request. 6.2. Use of Proceeds. The Borrower will, and will cause each of its Subsidiaries to, use the proceeds of the Advances only (i) for general working capital purposes, including Capital Expenditures (which shall not include expenses of retail store development, which are to be funded by Advances to the Affiliate Borrowers) within the restrictions set forth herein, (ii) to repay any outstanding loans under the Barclays Loan Agreement and (iii) to repay outstanding Advances hereunder. The Affiliate Borrowers will use the proceeds of the Advances only for development costs of retail store locations and expenses related thereto for stores which will become franchisees of the Borrower and for development costs relating to the Borrower's Las Vegas distribution center. Facility Letters of Credit may be issued only (i) to replace existing letters of credit issued under the Barclays Loan Agreement and (ii) for other uses acceptable to the Agent in its sole discretion. Neither the Borrower nor any Affiliate Borrower will, nor will it permit any of its Subsidiaries to, use any of the proceeds of the Advances to purchase or carry any "margin stock" (as defined in Regulation U) or to make any other Acquisition. 6.3. Notice of Default. The Borrower and each Affiliate Borrower will, and will cause each of its Subsidiaries to, give prompt notice in writing to the Lenders of the occurrence of any Default or Unmatured Default and of any other development, financial or otherwise, which could reasonably be expected to have a Material Adverse Effect or an Affiliate Borrower MAE. 6.4. Conduct of Business. The Borrower and each Affiliate Borrower will, and will cause each of its Subsidiaries to, carry on and conduct its business in substantially the same manner and in substantially the same fields of enterprise as it is presently conducted and to do all things necessary to remain duly incorporated, validly existing and in good standing as a 54 domestic corporation in its jurisdiction of incorporation and maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted. 6.5. Taxes. The Borrower and each Affiliate Borrower will, and will cause each of its Subsidiaries to, pay when due all taxes, assessments and governmental charges and levies upon it or its income, profits or Property, except those which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves have been set aside. 6.6. Insurance. The Borrower and each Affiliate Borrower will, and will cause each of its Subsidiaries to, maintain with financially sound and reputable insurance companies insurance on all their Property in such amounts and covering such risks as is consistent with sound business practice, and the Borrower and each Affiliate Borrower will furnish to any Lender upon request full information as to the insurance carried by it and its Subsidiaries. 6.7. Compliance with Laws; Environmental. The Borrower and each Affiliate Borrower will, and will cause each of its Subsidiaries to, comply with all laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject. Without limiting the effect of the preceding sentence, the Borrower and each Affiliate Borrower will, and will cause each of its Subsidiaries to, use and operate all of its facilities and properties in material compliance with all Environmental Laws, keep all necessary permits, approvals, certificates and licenses in effect and remain in material compliance therewith, and handle all Hazardous Materials in material compliance with all applicable Environmental Laws. 6.8. Maintenance of Properties. The Borrower and each Affiliate Borrower will, and will cause each of its Subsidiaries to, do all things necessary to maintain, preserve, protect and keep its Property in good repair, working order and condition, and make all necessary and proper repairs, renewals and replacements so that its business carried on in connection therewith may be properly conducted at all times. 6.9. Inspection. The Borrower and each Affiliate Borrower will, and will cause each of its Subsidiaries to, permit the Lenders, by their respective representatives and agents, to inspect any of the Property, corporate books and financial records of each of such entities, to examine and make copies of their respective books of accounts and other financial records, and to discuss the affairs, finances and accounts of each of such entities with, and to be advised as to the same by, their respective officers at such reasonable times and intervals as the Lenders may designate. 6.10. Dividends. The Borrower and each Affiliate Borrower will not, nor will it permit any of its Subsidiaries to, declare or pay any dividends on its capital stock (other than dividends payable in its own capital stock) or redeem, repurchase or otherwise acquire or retire any of its capital stock at any time outstanding, except that (i) any Subsidiary of the Borrower may declare and pay dividends to the Borrower or to a Wholly-Owned Subsidiary 55 of the Borrower and (ii) any Affiliate Borrower may declare and pay dividends to the Borrower or to any Wholly-Owned Subsidiary of the Borrower. 6.11. Indebtedness. Neither the Borrower nor any Affiliate Borrower will, nor will it permit any of its Subsidiaries to, create, incur or suffer to exist any Indebtedness, except: (i) The Credit Extensions. (ii) Indebtedness existing on the date hereof and described in Schedule "5" hereto, or any Indebtedness which refinances (without any increase in the principal amount thereof) any such Indebtedness, provided that the pricing and other terms and conditions of such replacment Indebtedness are no less favorable to the Big O Entities obligated with respect thereto than those of the Indebtedness being refinanced, provided further, that with respect to any Indebtedness being refinanced at the maturity thereof, such replacement Indebtedness may be priced at the then-current market rates. (iii) Indebtedness of any Subsidiary to the Borrower or to any Wholly- Owned Subsidiary of the Borrower. (iv) With respect to the Borrower, any Subsidiary or any Affiliate Borrower, accounts payable to trade creditors that are not aged more than ninety (90) days from the due date and current operating expenses (other than for Indebtedness for borrowed money) which are not more than sixty (60) days past due, in each case incurred in the ordinary course of business and paid within such time period, unless the same are being contested in good faith and appropriate reserves have been set aside with respect thereto in accordance with Agreement Accounting Principles. (v) Contingent Obligations permitted under Section 6.17. (vi) Additional Indebtedness in an aggregate principal amount not exceeding $500,000 at any one time outstanding. (vii) Permitted Construction Take-Out Indebtedness in amounts not to exceed those set forth in the definition of such term, provided that all Indebtedness of the Borrower, any Affiliate Borrower or any of their Subsidiaries under the Borrower's line of credit letter with AT&T Capital Corporation dated December 9, 1994, as amended, or, notwithstanding the provisions of Section 6.11(ii) regarding refinancing of existing Indebtedness, under any agreement which refinances such line of credit letter shall be deemed to constitute Permitted Construction Take-Out Indebtedness and shall be counted against such dollar limitations whether or not such Indebtedness was in existence on the date hereof. 56 6.12. Merger. Neither the Borrower nor any Affiliate Borrower will, nor will any of such entities permit any of its Subsidiaries to, merge or consolidate with or into any other Person, except that (i) a Subsidiary of the Borrower may merge with the Borrower or a Wholly-Owned Subsidiary of the Borrower and (ii) a Subsidiary of an Affiliate Borrower may merge with such Affiliate Borrower. 6.13. Sale of Assets. Neither the Borrower nor any Affiliate Borrower will, nor will any of such entities permit any of its Subsidiaries to, lease, sell or otherwise dispose of its Property, to any other Person except for (i) sales of inventory in the ordinary course of business, (ii) with respect to the Borrower and its Subsidiaries only, leases, sales or other dispositions of its Property that, together with all other Property of the Borrower and its Subsidiaries previously leased, sold or disposed of (other than inventory in the ordinary course of business) as permitted by this Section during the twelve- month period ending with the month in which any such lease, sale or other disposition occurs, do not constitute a Substantial Portion of the Property of the Borrower and its Subsidiaries and (iii) sales, transfers or other dispositions by any Credit Party of real property which was purchased for development as a retail store location and which is being sold to a franchisee or other Person, provided that the applicable Credit Party makes all mandatory prepayments required by Section 2.2.4(b). 6.14. Sale of Accounts. Neither the Borrower nor any Affiliate Borrower will, nor will any of such entities permit any of its Subsidiaries to, sell or otherwise dispose of any notes receivable or accounts receivable, with or without recourse, except for sales by the Borrower of notes receivable which are not and do not represent Collateral, provided that the Borrower makes the mandatory prepayment required by Section 2.2.4(b). 6.15. Sale and Leaseback. Neither the Borrower nor any Affiliate Borrower will, nor will any of such entities permit any of its Subsidiaries to, sell or transfer any of its Property in order to concurrently or subsequently lease as lessee such or similar Property, except that the Borrower and its Subsidiaries may engage in such transactions with respect to Property having an aggregate value, for all of such entities, not exceeding $2,500,000 at any one time. 6.16. Investments and Acquisitions. Neither the Borrower nor any Affiliate Borrower will, nor will any of such entities permit any of its Subsidiaries to, make or suffer to exist any Investments (including without limitation, loans and advances to, and other Investments in, its Subsidiaries), or commitments therefor, or to create any Subsidiary or to become or remain a partner in any partnership or joint venture, or to make any Acquisition of any Person, except: (i) Short-term obligations of, or fully guaranteed by, the United States of America. 57 (ii) Commercial paper rated A-l or better by Standard and Poor's Rating Group, a division of McGraw-Hill Corporation or P-l or better by Moody's Investors Service, Inc. (iii) Demand deposit accounts maintained in the ordinary course of business. (iv) Certificates of deposit issued by and time deposits with commercial banks (whether domestic or foreign) having capital and surplus in excess of $100,000,000. (v) Existing Investments in Subsidiaries and Affiliate Borrowers and other Investments in existence on the date hereof and described in Schedule "3" hereto. (vi) Investments by the Borrower in new Affiliate Borrowers with the consent of the Lenders and in compliance with the terms of Section 4.3. (vii) Investments by Affiliate Borrowers in Subsidiaries with the consent of the Lenders. (viii) A certificate of deposit in the principal amount of $250,000 issued by Bank One of Arizona. (ix) Funds or accounts acceptable to the Agent comprised of or which invest primarily in short-term investments and which are used as "sweep" accounts in connection with cash management services used by any Big O Entity. 6.17. Contingent Obligations. Neither the Borrower nor any Affiliate Borrower will, nor will any of such entities permit any of its Subsidiaries to, make or suffer to exist any Contingent Obligation (including, without limitation, any Contingent Obligation with respect to the obligations of a Subsidiary), except: (i) by endorsement of instruments for deposit or collection in the ordinary course of business; (ii) the Guaranty made by the Borrower in Article XIII; 58 (iii) guarantees for retail store financing provided to the Borrower's franchisees, the face amount of such guarantees to be limited to (x) for the period from the Closing Date through and including December 31, 1995, the lesser of $6,800,000 or the amount of such guarantees outstanding on December 31, 1994 plus $3,300,000, (y) for the period from January 1, 1996 through and including December 31, 1996, the lesser of $9,900,000 or the amount of such guarantees outstanding on December 31, 1995 plus $3,300,000 and (z) from and after January 1, 1997, the lesser of $13,200,000 or the amount of such guarantees outstanding on December 31, 1996 plus $3,300,000; (iv) guarantees issued with respect to real estate leases entered into by the Borrower's franchisees, the face amount of such guarantees to be limited to (x) for the period from the Closing Date through and including December 31, 1995, the lesser of $8,000,000 or the amount of such guarantees outstanding on December 31, 1994 plus $5,500,000, (y) for the period from January 1, 1996 through and including December 31, 1996, the lesser of $13,500,000 or the amount of such guarantees outstanding on December 31, 1995 plus $5,500,000 and (z) from and after January 1, 1997, the lesser of $19,000,000 or the amount of such guarantees outstanding on December 31, 1996 plus $5,500,000; (v) guarantees issued with respect to equipment leases entered into by the Borrower's franchisees, the face amount of such guarantees to be limited to (x) for the period from the Closing Date through and including December 31, 1995, the lesser of $2,250,000 or the amount of such guarantees outstanding on December 31, 1994 plus $1,000,000, (y) for the period from January 1, 1996 through and including December 31, 1996, the lesser of $3,250,000 or the amount of such guarantees outstanding on December 31, 1995 plus $1,000,000 and (z) from and after January 1, 1997, the lesser of $4,250,000 or the amount of such guarantees outstanding on December 31, 1996 plus $1,000,000; (vi) recourse and repurchase obligations in connection with sales of notes receivable permitted under Section 6.14 in an amount not to exceed at any one time (x) for the period from the Closing Date through and including December 31, 1995, $2,500,000 and (y) from and after January 1, 1996, the lesser of $3,500,000 or the amount of such recourse and repurchase obligations outstanding on December 31, 1995 plus $1,000,000; and (vii) a guarantee in an amount not exceeding $2,800,000 of the obligations of Allstate Insurance with respect to a mortgage loan of the Borrower assumed by Allstate Insurance. 6.18. Liens. Neither the Borrower nor any Affiliate Borrower will, nor will any of such entities permit any of its Subsidiaries to, create, incur, or suffer to exist any Lien in, of or on its Property, except: 59 (i) Liens for taxes, assessments or governmental charges or levies on its Property if the same shall not at the time be delinquent or thereafter can be paid without penalty, or are being contested in good faith and by appropriate proceedings and for which adequate reserves in accordance with generally accepted principles of accounting shall have been set aside on its books. (ii) Liens imposed by law, such as carriers', warehousemen's and mechanics' liens and other similar liens arising in the ordinary course of business which secure payment of obligations not more than 60 days past due or which are being contested in good faith by appropriate proceedings and for which adequate reserves shall have been set aside on its books. (iii) Liens arising out of pledges or deposits under worker's compensation laws, unemployment insurance, old age pensions, or other social security or retirement benefits, or similar legislation. (iv) Utility easements, building restrictions and such other encumbrances or charges against real property as are of a nature generally existing with respect to properties of a similar character and which do not in any material way affect the marketability of the same or interfere with the use thereof in the business of the Big O Entities. (v) Liens existing on the date hereof and described in Schedule "5" hereto. (vi) Liens in favor of the Lenders granted pursuant to any Collateral Document. 6.19. Transactions with Affiliates. Neither the Borrower nor any Affiliate Borrower will, nor will any of such entities permit any of its Subsidiaries to, enter into any transaction (including, without limitation, the purchase or sale of any Property or service) with, or make any payment or transfer to, any Affiliate except in the ordinary course of business and pursuant to the reasonable requirements of the Borrower's, such Affiliate Borrower's or such Subsidiary's business and upon fair and reasonable terms no less favorable to the Borrower, such Affiliate Borrower or such Subsidiary than the Borrower, such Affiliate Borrower or such Subsidiary would obtain in a comparable arms-length transaction. 6.20. Letters of Credit. Neither the Borrower nor any Affiliate Borrower will, nor will any of such entities permit any of its Subsidiaries to, apply for or become liable upon any Letter of Credit other than a Facility Letter of Credit. 6.21. Prepayment of Certain Indebtedness. Neither the Borrower nor any Affiliate Borrower will, nor will any of such entities permit any of its Subsidiaries to, make any amendment or modification to the indenture, note or other agreement evidencing or governing any Indebtedness of the types described in Section 6.11(ii) and (vii), or directly or indirectly voluntarily prepay, defease or in substance defease, purchase, redeem, retire or otherwise 60 acquire, any such Indebtedness, or make any payment on any such Indebtedness during the continuation of a Default, except (i) such prepayments as are required pursuant to Section 2.2.4(b), (ii) refinancings of the Indebtedness described in Section 6.11(ii) to the extent specifically permitted by the provisions of such Section and (iii) refinancings of any Indebtedness which is replaced by Permitted Construction Take-Out Indebtedness in accordance with all of the provisions of this Agreement. 6.22. Amendments to Certain Agreements. Neither the Borrower nor any Affiliate Borrower will, nor will any of such entities permit any of its Subsidiaries to, (i) amend or terminate any of the landlord waivers or bailee agreements entered into pursuant to the requirements of this Agreement or (ii) make any significant changes in the standard form of franchise agreement for the Borrower from the form attached to the offering circular dated April 1, 1993 as amended November 19, 1993. 6.23. Financial Undertakings. Neither the Borrower nor any Affiliate Borrower will, nor will any of such entities permit any of its Subsidiaries to, enter into or remain liable upon any Financial Undertaking, except (i) Rate Hedging Obligations entered into with one of the Lenders, (ii) recourse and repurchase obligations in the amount permitted under Section 6.17(vi) in connection with sales of notes receivable permitted under Section 6.14 and (iii) sale/leaseback transactions permitted under Section 6.15. 6.24. Financial Covenants. ------------------- 6.24.1. Leverage Ratio. The Borrower will maintain at all times a -------------- Leverage Ratio not greater than 0.50 to 1.0. 6.24.2. Fixed Charge Coverage Ratio. The Borrower will maintain, as at the last day of each fiscal quarter falling during the periods described below, a Fixed Charge Coverage Ratio for the four most recently ended fiscal quarters of not less than (i) 1.35 to 1.0 for the period from the Closing Date through and including December 30, 1995 and (ii) 1.5 to 1.0 for the period from and after December 31, 1995. 6.24.3. Minimum Tangible Net Worth. The Borrower shall maintain at all times a Tangible Net Worth of not less than the sum of $22,000,000 plus 50% of the cumulative amount of Net Income (without deducting for losses) earned by the Borrower and its Subsidiaries for all fiscal periods commencing after December 31, 1994. 6.24.4. Cash Flow Coverage Ratio. The Borrower will maintain, as at the last day of each fiscal quarter falling during the periods described below, a Cash Flow Coverage Ratio for the four most recently ended fiscal quarters of not less than (i) 0.10 to 1.0 for the period from the Closing Date through and including December 30, 1995, (ii) 0.125 to 1.0 for the period from December 31, 1995 through and including 61 December 30, 1997 and (iii) 0.15 to 1.0 for the period from and after December 31, 1997. 6.24.5. Rentals. The Borrower will not, nor will it permit its Subsidiaries to, create, incur or suffer to exist obligations for Rentals in excess of (i) $3,000,000 for the period from the Closing Date through and including December 30, 1995, (ii) $4,000,000 for the period from December 31, 1995 through and including December 30, 1996 and (iii) $5,000,000 for the period from and after December 31, 1996, measured on a non-cumulative basis in the aggregate for the Borrower and its Subsidiaries. 6.24.6. Capital Expenditures. The Borrower will not, nor will it permit its Subsidiaries to, make, or be committed to make, Capital Expenditures in excess of (i) $2,500,000 during fiscal 1995 and (ii) $2,000,000 during any fiscal year thereafter, on a non-cumulative basis in the aggregate for the Borrower and its Subsidiaries, provided that Capital Expenditures relating to the construction of the Borrower's Las Vegas distribution center shall be permitted and shall not count against the limits in clauses (i) and (ii), above. ARTICLE VII DEFAULTS -------- The occurrence of any one or more of the following events shall constitute a Default: 7.1. Any representation or warranty made or deemed made by or on behalf of any Big O Entity to the Lenders or the Agent under or in connection with this Agreement, any other Loan Document, any Credit Extension, or any certificate or information delivered in connection with this Agreement or any other Loan Document shall be materially false on the date as of which made. 7.2. Nonpayment of principal of any Note or of any Reimbursement Obligation when due (including, without limitation, failure to make any payment required by Section 2.1(b)), or nonpayment of interest upon any Note or of any commitment fee or other obligation under any of the Loan Documents within five days after the same becomes due. 7.3. The breach by any Credit Party of any of the terms or provisions of Article VI. 62 7.4. The breach by any Credit Party (other than a breach which constitutes a Default under Section 7.1, 7.2 or 7.3) of any of the terms or provisions of this Agreement which is not remedied within five days after written notice from the Agent or any Lender. 7.5. Failure of any Big O Entity to pay any Indebtedness or any Contingent Obligation when due; or the default by any Big O Entity in the performance of any term, provision or condition contained in any agreement under which any Indebtedness or any Contingent Obligation was created or is governed, or any other event shall occur or condition exist, the effect of which is to cause, or to permit the holder or holders of such Indebtedness to cause, such Indebtedness to become due prior to its stated maturity; or any Indebtedness of any Big O Entity shall be declared to be due and payable or required to be prepaid (other than by a regularly scheduled payment) prior to the stated maturity thereof; or any Big O Entity shall not pay, or admit in writing its inability to pay, its debts generally as they become due. 7.6. Any Big O Entity shall (i) have an order for relief entered with respect to it under the Federal bankruptcy laws as now or hereafter in effect, (ii) make an assignment for the benefit of creditors, (iii) apply for, seek, consent to, or acquiesce in, the appointment of a receiver, custodian, trustee, examiner, liquidator or similar official for it or any Substantial Portion of its Property, (iv) institute any proceeding seeking an order for relief under the Federal bankruptcy laws as now or hereafter in effect or seeking to adjudicate it a bankrupt or insolvent, or seeking dissolution, winding up, liquidation, reorganization, arrangement, adjustment or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors or fail to file an answer or other pleading denying the material allegations of any such proceeding filed against it, (v) take any corporate action to authorize or effect any of the foregoing actions set forth in this Section 7.6 or (vi) fail to contest in good faith any appointment or proceeding described in Section 7.7. 7.7. Without such entity's application, approval or consent, a receiver, trustee, examiner, liquidator or similar official shall be appointed for any Big O Entity or any Substantial Portion of its Property, or a proceeding described in Section 7.6(iv) shall be instituted against any Big O Entity and such appointment continues undischarged or such proceeding continues undismissed or unstayed for a period of 30 consecutive days. 7.8. Any court, government or governmental agency shall condemn, seize or otherwise appropriate, or take custody or control of (each a "Condemnation"), all or any portion of the Property of any Big O Entity which, when taken together with all other Property of such Big O Entity so condemned, seized, appropriated, or taken custody or control of, during the twelve-month period ending with the month in which any such Condemnation occurs, could, in the reasonable opinion of the Agent, have a Material Adverse Effect. 63 7.9. Any Big O Entity shall fail within 30 days to pay, bond or otherwise discharge any judgment or order for the payment of money in excess of $50,000, which is not stayed on appeal or otherwise being appropriately contested in good faith. 7.10. There shall be any Unfunded Liabilities with respect to any Single Employer Plans or any Reportable Event shall occur in connection with any Plan. 7.11. The Borrower or any other member of the Controlled Group shall have been notified by the sponsor of a Multiemployer Plan that it has incurred withdrawal liability to such Multiemployer Plan. 7.12. The Borrower or any other member of the Controlled Group shall have been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or is being terminated, within the meaning of Title IV of ERISA. 7.13. Any Big O Entity shall be the subject of any proceeding or investigation pertaining to the release by any Person of any toxic or hazardous waste or substance into the environment, or any violation of any federal, state or local environmental, health or safety law or regulation, which, in either case, could have a Material Adverse Effect or an Affiliate Borrower MAE. 7.14. Any Change in Control shall occur. 7.15. The occurrence of any "default", as defined in any Loan Document (other than this Agreement or the Notes) or the breach of any of the terms or provisions of any Loan Document (other than this Agreement or the Notes), which default or breach continues beyond any period of grace therein provided. 7.16. Nonpayment by the Borrower of any Rate Hedging Obligation or the breach by the Borrower of any term, provision or condition contained in any agreement, device or arrangement giving rise to any Rate Hedging Obligation. 7.17. Any Collateral Document shall for any reason fail to create a valid and perfected first priority security interest in any collateral purported to be covered thereby, except as permitted by the terms of any Collateral Document, or any Collateral Document shall fail to remain in full force or effect or any action shall be taken to discontinue or to assert the invalidity or unenforceability of any Collateral Document, or the Borrower or any other Borrowing Base Party shall fail to comply with any of the terms or provisions of any Collateral Document. 64 ARTICLE VIII ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES ---------------------------------------------- 8.1. Acceleration. ------------ (a) If any Default described in Section 7.6 or 7.7 occurs, (i) the obligations of the Lenders to make Loans hereunder and the obligations of the Issuer to issue Facility Letters of Credit shall automatically terminate and the Obligations shall immediately become due and payable without presentment, demand, protest or notice of any kind, all of which the Credit Parties hereby expressly waive and without any election or action on the part of the Agent or any Lender and (ii) the Borrower will be and become thereby unconditionally obligated, without the need for demand or the necessity of any act or evidence, to deliver to the Agent, at its address specified pursuant to Article XIV, for deposit into the Letter of Credit Collateral Account, an amount (the "Collateral Shortfall Amount") equal to the excess, if any, of (A) 100% of the sum of the aggregate maximum amount remaining available to be drawn under the Facility Letters of Credit (assuming compliance with all conditions for drawing thereunder) issued by the Issuer and outstanding as of such time, over (B) the amount on deposit in the Letter of Credit Collateral Account at such time that is free and clear of all rights and claims of third parties and that has not been applied by the Lenders against the Obligations. (b) If any Default occurs and is continuing (other than a Default described in Section 7.6 or 7.7), (i) the Required Lenders may terminate or suspend the obligations of the Lenders to make Loans and the obligation of the Issuer to issue Facility Letters of Credit hereunder, or declare the Obligations to be due and payable, or both, whereupon the Obligations shall become immediately due and payable, without presentment, demand, protest or notice of any kind, all of which the Credit Parties hereby expressly waive and (ii) the Required Lenders may, upon notice delivered to the Borrower and in addition to the continuing right to demand payment of all amounts payable under this Agreement, make demand on the Borrower to deliver (and the Borrower will, forthwith upon demand by the Required Lenders and without necessity of further act or evidence, be and become thereby unconditionally and jointly and severally obligated to deliver), to the Agent, at its address specified pursuant to Article XIV, for deposit into the Letter of Credit Collateral Account an amount equal to the Collateral Shortfall Amount. (c) If at any time while any Default is continuing, the Agent determines that the Collateral Shortfall Amount at such time is greater than zero, the Agent may make demand on the Borrower to deliver (and the Borrower will, forthwith upon demand by the Agent and without necessity of further act or evidence, be and become thereby unconditionally obligated 65 to deliver), to the Agent as additional funds to be deposited and held in the Letter of Credit Collateral Account an amount equal to such Collateral Shortfall Amount at such time. (d) The Agent may at any time or from time to time after funds are deposited in the Letter of Credit Collateral Account, apply such funds to the payment of the Obligations and any other amounts as shall from time to time have become due and payable by the Borrower to the Lenders under the Loan Documents. (e) At any time while any Default is continuing, neither the Borrower nor any Person claiming on behalf of or through the Borrower shall have any right to withdraw any of the funds held in the Letter of Credit Collateral Account. After all of the Obligations have been indefeasibly paid in full, any funds remaining in the Letter of Credit Collateral Account shall be returned by the Agent to the Borrower or paid to whoever may be legally entitled thereto at such time. (f) The Agent shall exercise reasonable care in the custody and preservation of any funds held in the Letter of Credit Collateral Account and shall be deemed to have exercised such care if such funds are accorded treatment substantially equivalent to that which the Agent accords its own property, it being understood that the Agent shall not have any responsibility for taking any necessary steps to preserve rights against any Persons with respect to any such funds. 8.2. Amendments. Subject to the provisions of this Article VIII, the Required Lenders (or the Agent with the consent in writing of the Required Lenders) and the Credit Parties may enter into agreements supplemental hereto for the purpose of adding or modifying any provisions to the Loan Documents or changing in any manner the rights of the Lenders or the Credit Parties hereunder or waiving any Default hereunder; provided, however, that no such supplemental agreement shall, without the consent of each Lender affected thereby: (i) Extend the maturity of any Loan or Note or forgive all or any portion of the principal amount thereof, or reduce the rate or extend the time of payment of interest or fees thereon. (ii) Reduce or extend the Reimbursement Obligations, or reduce the rate or change the time of payment of any fees related to Facility Letters of Credit; (iii) Reduce the percentage specified in the definition of Required Lenders. (iv) Extend the Facility Termination Date, or reduce the amount or extend the payment date for, the mandatory payments required under Sections 2.1 or 6.13, or increase the amount of the Commitment of any Lender hereunder, or permit any Credit Party to assign its rights under this Agreement. 66 (v) Amend this Section 8.2. (vi) Release any guarantor of any Advance or, except as provided in the Collateral Documents, release all or substantially all of the Collateral (as defined in the Collateral Documents, respectively). No amendment of any provision of this Agreement relating to the Agent shall be effective without the written consent of the Agent. The Agent may waive payment of the fee required under Section 12.3.2 without obtaining the consent of any other party to this Agreement. 8.3. Preservation of Rights. No delay or omission of the Lenders or the Agent to exercise any right under the Loan Documents shall impair such right or be construed to be a waiver of any Default or an acquiescence therein, and the making of a Credit Extension notwithstanding the existence of a Default or the inability of the applicable Credit Party to satisfy the conditions precedent to such Credit Extension shall not constitute any waiver or acquiescence. Any single or partial exercise of any such right shall not preclude other or further exercise thereof or the exercise of any other right, and no waiver, amendment or other variation of the terms, conditions or provisions of the Loan Documents whatsoever shall be valid unless in writing signed by the Lenders required pursuant to Section 8.2, and then only to the extent in such writing specifically set forth. All remedies contained in the Loan Documents or by law afforded shall be cumulative and all shall be available to the Agent and the Lenders until the Obligations have been paid in full. ARTICLE IX GENERAL PROVISIONS ------------------ 9.1. Survival of Representations. All representations and warranties of the Credit Parties contained in this Agreement shall survive delivery of the Notes and the making of the Loans herein contemplated. 9.2. Governmental Regulation. Anything contained in this Agreement to the contrary notwithstanding, no Lender shall be obligated to extend credit to any Credit Party in violation of any limitation or prohibition provided by any applicable statute or regulation. 9.3. Taxes. Any taxes (excluding (x) federal taxation of the overall net income of the Agent or any Lender or applicable Lending Installation and (y) overall net income and franchise or other similar taxes imposed on the Agent or any Lender by a jurisdiction under the laws of which the Agent or such Lender is organized, in which its principal office is located, or in which its applicable Lending Installation is located) or other similar assessments or charges made by any governmental or revenue authority in respect of the Loan Documents 67 shall be paid by the Borrower, together with interest and penalties, if any resulting from the Borrower's failure to fulfill its obligations hereunder. 9.4. Headings. Section headings in the Loan Documents are for convenience of reference only, and shall not govern the interpretation of any of the provisions of the Loan Documents. 9.5. Entire Agreement. The Loan Documents embody the entire agreement and understanding among the Big O Entities, the Agent and the Lenders and supersede all prior agreements and understandings among the Big O Entities, the Agent and the Lenders relating to the subject matter thereof. 9.6. Several Obligations; Benefits of this Agreement. The respective obligations of the Lenders hereunder are several and not joint and no Lender shall be the partner or agent of any other (except to the extent to which the Agent is authorized to act as such). The failure of any Lender to perform any of its obligations hereunder shall not relieve any other Lender from any of its obligations hereunder. This Agreement shall not be construed so as to confer any right or benefit upon any Person other than the parties to this Agreement and their respective successors and assigns. 9.7. Expenses; Indemnification. The Borrower shall reimburse the Agent for any costs, internal charges and out-of-pocket expenses (including (i) attorneys' fees and time charges of attorneys for the Agent, which attorneys may be employees of the Agent and (ii) fees and expenses of the Agent's traveling auditors and other professionals in connection with analysis and review of the Collateral) paid or incurred by the Agent in connection with the preparation, negotiation, execution, delivery, review, amendment, modification, and administration of the Loan Documents. The Borrower also agrees to reimburse the Agent and the Lenders for any costs, internal charges and out-of-pocket expenses (including (i) attorneys' fees and time charges of attorneys for the Agent and the Lenders, which attorneys may be employees of the Agent or the Lenders and (ii) fees and expenses of the Agent's traveling auditors and other professionals in connection with analysis, review and disposition of the Collateral) paid or incurred by the Agent or any Lender in connection with the collection and enforcement of the Loan Documents. The Borrower further agrees to indemnify the Agent and each Lender, its directors, officers and employees against all losses, claims, damages, penalties, judgments, liabilities and expenses (including, without limitation, all expenses of litigation or preparation therefor whether or not the Agent or any Lender is a party thereto) which any of them may pay or incur arising out of or relating to this Agreement, the other Loan Documents, the transactions contemplated hereby or the direct or indirect application or proposed application of the proceeds of any Loan hereunder, except that the Borrower shall not be liable for any such losses, claims, damages, penalties, judgments, liabilities or expenses to the extent that they are found in a final judgment by a court of competent jurisdiction to have arisen from the gross negligence or willful misconduct of the party to be indemnified. The obligations of the Borrower under this Section shall survive the termination of this Agreement. 68 9.8. Numbers of Documents. All statements, notices, closing documents, and requests hereunder shall be furnished to the Agent with sufficient counterparts so that the Agent may furnish one to each of the Lenders. 9.9. Accounting. Except as provided to the contrary herein, all accounting terms used herein shall be interpreted and all accounting determinations hereunder shall be made in accordance with Agreement Accounting Principles. 9.10. Severability of Provisions. Any provision in any Loan Document that is held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or invalid without affecting the remaining provisions in that jurisdiction or the operation, enforceability, or validity of that provision in any other jurisdiction, and to this end the provisions of all Loan Documents are declared to be severable. 9.11. Nonliability of Lenders. The relationship between the Credit Parties, on the one hand, and the Lenders and the Agent, on the other, shall be solely that of borrower and lender. Neither the Agent nor any Lender shall have any fiduciary responsibilities to any of the Credit Parties. Neither the Agent nor any Lender undertakes any responsibility to any of the Credit Parties to review or inform any of them of any matter in connection with any phase of their respective business or operations. 9.12. CHOICE OF LAW. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. 9.13. CONSENT TO JURISDICTION. THE CREDIT PARTIES HEREBY IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR ILLINOIS STATE COURT SITTING IN CHICAGO IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND THE CREDIT PARTIES HEREBY IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVE ANY OBJECTION ANY OF THEM MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST ANY CREDIT PARTY IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY ANY CREDIT PARTY AGAINST THE AGENT OR ANY LENDER OR ANY AFFILIATE OF THE AGENT OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, 69 RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN CHICAGO, ILLINOIS. 9.14. WAIVER OF JURY TRIAL. THE CREDIT PARTIES, THE AGENT AND EACH LENDER HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER. 9.15. Confidentiality. Each Lender agrees to hold any confidential information which it may receive from the Big O Entities pursuant to this Agreement in confidence, except for disclosure (i) to other Lenders and their respective Affiliates, (ii) to legal counsel, accountants, and other professional advisors to that Lender or to a Transferee each of whom shall be subject to the restrictions set forth in this Section, (iii) to regulatory officials, (iv) to any Person as requested pursuant to or as required by law, regulation, or legal process, (v) to any Person in connection with any legal proceeding to which that Lender is a party, and (vi) as permitted by Section 12.4. 9.16. Nonreliance. Each Lender hereby represents that it is not relying on or looking to any margin stock (as defined in Regulation U of the Board of Governors of the Federal Reserve System) for the repayment of the Loans provided for herein. ARTICLE X THE AGENT --------- 10.1. Appointment. The First National Bank of Chicago is hereby appointed Agent hereunder and under each other Loan Document, and each of the Lenders irrevocably authorizes the Agent to act as the agent of such Lender. The Agent agrees to act as such upon the express conditions contained in this Article X. The Agent shall not have a fiduciary relationship in respect of the Borrower or any Lender by reason of this Agreement. 10.2. Powers. The Agent shall have and may exercise such powers under the Loan Documents as are specifically delegated to the Agent by the terms of each thereof, together with such powers as are reasonably incidental thereto. The Agent shall have no implied duties to the Lenders, or any obligation to the Lenders to take any action thereunder except any action specifically provided by the Loan Documents to be taken by the Agent. 70 10.3. General Immunity. Neither the Agent nor any of its directors, officers, agents or employees shall be liable to any Credit Party, the Lenders or any Lender for any action taken or omitted to be taken by it or them hereunder or under any other Loan Document or in connection herewith or therewith except for its or their own gross negligence or willful misconduct. 10.4. No Responsibility for Loans, Recitals, etc. Neither the Agent nor any of its directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into, or verify (i) any statement, warranty or representation made in connection with any Loan Document or any borrowing hereunder; (ii) the performance or observance of any of the covenants or agreements of any obligor under any Loan Document, including, without limitation, any agreement by an obligor to furnish information directly to each Lender; (iii) the satisfaction of any condition specified in Article IV, except receipt of items required to be delivered to the Agent; (iv) the validity, effectiveness or genuineness of any Loan Document or any other instrument or writing furnished in connection therewith; or (v) the value, sufficiency, creation, perfection or priority of any interest in any collateral security. The Agent shall have no duty to disclose to the Lenders information that is not required to be furnished by the Big O Entities to the Agent at such time, but is voluntarily furnished by any of such entities to the Agent (either in its capacity as Agent or in its individual capacity). 10.5. Action on Instructions of Lenders. The Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder and under any other Loan Document in accordance with written instructions signed by the Required Lenders, and such instructions and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders and on all holders of Notes. The Agent shall be fully justified in failing or refusing to take any action hereunder and under any other Loan Document unless it shall first be indemnified to its satisfaction by the Lenders pro rata against any and all liability, cost and expense that it may incur by reason of taking or continuing to take any such action. 10.6. Employment of Agents and Counsel. The Agent may execute any of its duties as Agent hereunder and under any other Loan Document by or through employees, agents, and attorneys-in-fact and shall not be answerable to the Lenders, except as to money or securities received by it or its authorized agents, for the default or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. The Agent shall be entitled to advice of counsel concerning all matters pertaining to the agency hereby created and its duties hereunder and under any other Loan Document. 10.7. Reliance on Documents; Counsel. The Agent shall be entitled to rely upon any Note, notice, consent, certificate, affidavit, letter, telegram, statement, paper or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and, in respect to legal matters, upon the opinion of counsel selected by the Agent, which counsel may be employees of the Agent. 71 10.8. Agent's Reimbursement and Indemnification. The Lenders agree to reimburse and indemnify the Agent ratably in proportion to their respective Commitments (i) for any amounts not reimbursed by the Borrower or another Credit Party for which the Agent is entitled to reimbursement by the Borrower or another Credit Party under the Loan Documents, (ii) for any other expenses incurred by the Agent on behalf of the Lenders, in connection with the preparation, execution, delivery, administration and enforcement of the Loan Documents and (iii) for any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of the Loan Documents or any other document delivered in connection therewith or the transactions contemplated thereby, or the enforcement of any of the terms thereof or of any such other documents, provided that no Lender shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the Agent. The obligations of the Lenders under this Section 10.8 shall survive payment of the Obligations and termination of this Agreement. 10.9. Rights as a Lender. In the event the Agent is a Lender, the Agent shall have the same rights and powers hereunder and under any other Loan Document as any Lender and may exercise the same as though it were not the Agent, and the term "Lender" or "Lenders" shall, at any time when the Agent is a Lender, unless the context otherwise indicates, include the Agent in its individual capacity. The Agent may accept deposits from, lend money to, and generally engage in any kind of trust, debt, equity or other transaction, in addition to those contemplated by this Agreement or any other Loan Document, with any Big O Entity in which such Big O Entity is not restricted hereby from engaging with any other Person. The Agent, in its individual capacity, is not obligated to remain a Lender. 10.10. Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon the Agent or any other Lender and based on the financial statements prepared by the Borrower and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and the other Loan Documents. Each Lender also acknowledges that it will, independently and without reliance upon the Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents. 10.11. Successor Agent. The Agent may resign at any time by giving written notice thereof to the Lenders and the Borrower, such resignation to be effective upon the appointment of a successor Agent or, if no successor Agent has been appointed, forty-five days after the retiring Agent gives notice of its intention to resign. Upon any such resignation, the Required Lenders shall have the right to appoint, on behalf of the Credit Parties and the Lenders, a successor Agent. If no successor Agent shall have been so appointed by the Required Lenders within thirty days after the resigning Agent's giving notice of its intention to resign, then the resigning Agent may appoint, on behalf of the Credit Parties and the Lenders, a successor Agent. If the Agent has resigned and no successor 72 Agent has been appointed, the Lenders may perform all the duties of the Agent hereunder and the Credit Parties shall make all payments in respect of the Obligations to the applicable Lender and for all other purposes shall deal directly with the Lenders. No successor Agent shall be deemed to be appointed hereunder until such successor Agent has accepted the appointment. Any such successor Agent shall be a commercial bank having capital and retained earnings of at least $100,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the resigning Agent. Upon the effectiveness of the resignation of the Agent, the resigning Agent shall be discharged from its duties and obligations hereunder and under the Loan Documents. After the effectiveness of the resignation of an Agent, the provisions of this Article X shall continue in effect for the benefit of such Agent in respect of any actions taken or omitted to be taken by it while it was acting as the Agent hereunder and under the other Loan Documents. 10.12. Execution of Collateral Documents. The Lenders hereby empower and authorize the Agent to execute and deliver to the Big O Entities on their behalf the Collateral Documents and all related financing statements and any financing statements, agreements, documents or instruments as shall be necessary or appropriate to effect the purposes of the Collateral Documents. 10.13. COLLATERAL RELEASES. THE LENDERS HEREBY EMPOWER AND AUTHORIZE THE AGENT TO EXECUTE AND DELIVER TO THE BIG O ENTITIES ON THEIR BEHALF ANY AGREEMENTS, DOCUMENTS OR INSTRUMENTS AS SHALL BE NECESSARY OR APPROPRIATE TO EFFECT ANY RELEASES OF COLLATERAL WHICH SHALL BE PERMITTED BY THE TERMS HEREOF OR OF ANY OTHER LOAN DOCUMENT OR WHICH SHALL OTHERWISE HAVE BEEN APPROVED BY THE REQUIRED LENDERS (OR, IF REQUIRED BY THE TERMS OF SECTION 8.2, ALL OF THE LENDERS) IN WRITING. ARTICLE XI SETOFF; RATABLE PAYMENTS ------------------------ 11.1. Setoff. In addition to, and without limitation of, any rights of the Lenders under applicable law, if any Credit Party becomes insolvent, however evidenced, or any Default or Unmatured Default occurs, any and all deposits (including all account balances, whether provisional or final and whether or not collected or available) and any other Indebtedness at any time held or owing by any Lender to or for the credit or account of any Credit Party may be offset and applied toward the payment of the Obligations owing to such Lender, whether or not the Obligations, or any part hereof, shall then be due. 11.2. Ratable Payments. If any Lender, whether by setoff or otherwise, has payment made to it upon its Loans or participations in Facility Letters of Credit (other than payments 73 received pursuant to Sections 3.1, 3.2 or 3.4) in a greater proportion than that received by any other Lender, such Lender agrees, promptly upon demand, to purchase a portion of the Loans or participations in Facility Letters of Credit held by the other Lenders so that after such purchase each Lender will hold its ratable proportion of Loans and participations in Facility Letters of Credit. If any Lender, whether in connection with setoff or amounts which might be subject to setoff or otherwise, receives collateral or other protection for its Obligations or such amounts which may be subject to setoff, such Lender agrees, promptly upon demand, to take such action necessary such that all Lenders share in the benefits of such collateral ratably in proportion to their Loans and Facility Letters of Credit. In case any such payment is disturbed by legal process, or otherwise, appropriate further adjustments shall be made. ARTICLE XII BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS ------------------------------------------------- 12.1. Successors and Assigns. The terms and provisions of the Loan Documents shall be binding upon and inure to the benefit of the Credit Parties and the Lenders and their respective successors and assigns, except that (i) the Credit Parties shall not have the right to assign their respective rights or obligations under the Loan Documents and (ii) any assignment by any Lender must be made in compliance with Section 12.3. Notwithstanding clause (ii) of this Section, any Lender may at any time, without the consent of the Credit Parties or the Agent, assign all or any portion of its rights under this Agreement and its Notes to a Federal Reserve Bank; provided, however, that no such assignment shall release the transferor Lender from its obligations hereunder. The Agent may treat the payee of any Note as the owner thereof for all purposes hereof unless and until such payee complies with Section 12.3 in the case of an assignment thereof or, in the case of any other transfer, a written notice of the transfer is filed with the Agent. Any assignee or transferee of a Note agrees by acceptance thereof to be bound by all the terms and provisions of the Loan Documents. Any request, authority or consent of any Person, who at the time of making such request or giving such authority or consent is the holder of any Note, shall be conclusive and binding on any subsequent holder, transferee or assignee of such Note or of any Note or Notes issued in exchange therefor. 12.2. Participations. -------------- 12.2.1 Permitted Participants; Effect. Any Lender may, in the ordinary course of its business and in accordance with applicable law, at any time sell to one or more banks or other entities ("Participants") participating interests in any Loan owing to such Lender, any participation in Facility Letters of Credit owned by such Lender, any Note held by such Lender, any Commitment of such Lender or any other interest of such Lender under the Loan Documents. In the event of any such sale by a Lender 74 of participating interests to a Participant, such Lender's obligations under the Loan Documents shall remain unchanged, such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, such Lender shall remain the holder of any such Note for all purposes under the Loan Documents, all amounts payable by the Credit Parties under this Agreement shall be determined as if such Lender had not sold such participating interests, and the Credit Parties and the Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under the Loan Documents. 12.2.2. Voting Rights. Each Lender shall retain the sole right to approve, without the consent of any Participant, any amendment, modification or waiver of any provision of the Loan Documents other than any amendment, modification or waiver with respect to any Loan, Facility Letter of Credit or Commitment in which such Participant has an interest which forgives principal, interest or fees or reduces the interest rate or fees payable with respect to any such Loan, Facility Letter of Credit or Commitment, postpones any date fixed for any regularly-scheduled payment of principal of, or interest or fees on, any such Loan, Facility Letter of Credit or Commitment, releases any guarantor of any such Loan or Facility Letter of Credit or releases any substantial portion of collateral, if any, securing any such Loan or Facility Letter of Credit. 12.2.3. Benefit of Setoff. The Credit Parties agree that each Participant shall be deemed to have the right of setoff provided in Section 11.1 in respect of its participating interest in amounts owing under the Loan Documents to the same extent as if the amount of its participating interest were owing directly to it as a Lender under the Loan Documents, provided that each Lender shall retain the right of setoff provided in Section 11.1 with respect to the amount of participating interests sold to each Participant. The Lenders agree to share with each Participant, and each Participant, by exercising the right of setoff provided in Section 11.1, agrees to share with each Lender, any amount received pursuant to the exercise of its right of setoff, such amounts to be shared in accordance with Section 11.2 as if each Participant were a Lender. 12.3. Assignments. ----------- 12.3.1. Permitted Assignments. Any Lender may, in the ordinary course of its business and in accordance with applicable law, and with the consent of the Issuer, at any time assign to one or more banks or other entities ("Purchasers") all or any part of its rights and obligations under the Loan Documents. Such assignment shall be substantially in the form of Exhibit "H" hereto or in such other form as may be agreed to by the parties thereto. The consent of the Credit Parties and the Agent shall be required prior to an assignment becoming effective with respect to a Purchaser which is not a Lender or an Affiliate thereof; provided, however, that if a Default has 75 occurred and is continuing, the consent of the Credit Parties shall not be required. Such consent shall not be unreasonably withheld. 12.3.2. Effect; Effective Date. Upon (i) delivery to the Agent of a notice of assignment, substantially in the form attached as Exhibit "I" to Exhibit "H" hereto (a "Notice of Assignment"), together with any consents required by Section 12.3.1, and (ii) payment of a $2,500 fee to the Agent for processing such assignment, such assignment shall become effective on the effective date specified in such Notice of Assignment. The Notice of Assignment shall contain a representation by the Purchaser to the effect that none of the consideration used to make the purchase of the Commitment, Loans and participation in Facility Letters of Credit under the applicable assignment agreement are "plan assets" as defined under ERISA and that the rights and interests of the Purchaser in and under the Loan Documents will not be "plan assets" under ERISA. On and after the effective date of such assignment, such Purchaser shall for all purposes be a Lender party to this Agreement and any other Loan Document executed by the Lenders and shall have all the rights and obligations of a Lender under the Loan Documents, to the same extent as if it were an original party hereto, and no further consent or action by the Credit Parties, the Lenders or the Agent shall be required to release the transferor Lender with respect to the percentage of the Aggregate Commitment, Loans and participation in Facility Letters of Credit assigned to such Purchaser. Upon the consummation of any assignment to a Purchaser pursuant to this Section 12.3.2, the transferor Lender, the Agent and the Credit Parties shall make appropriate arrangements so that replacement Notes are issued to such transferor Lender and new Notes or, as appropriate, replacement Notes, are issued to such Purchaser, in each case in principal amounts reflecting their Commitment, as adjusted pursuant to such assignment. 12.4. Dissemination of Information. The Credit Parties authorize each Lender to disclose to any Participant or Purchaser or any other Person acquiring an interest in the Loan Documents by operation of law (each a "Transferee") and any prospective Transferee any and all information in such Lender's possession concerning the creditworthiness of the Credit Parties and their respective Subsidiaries; provided that each Transferee and prospective Transferee agrees to be bound by Section 9.15 of this Agreement. 12.5. Tax Treatment. If any interest in any Loan Document is transferred to any Transferee which is organized under the laws of any jurisdiction other than the United States or any State thereof, the transferor Lender shall cause such Transferee, concurrently with the effectiveness of such transfer, to comply with the provisions of Section 2.9. 76 ARTICLE XIII GUARANTY -------- 13.1. Guaranty of Payment and Performance of Obligations of Affiliate Borrowers. The Borrower hereby guarantees to the Agent and the Lenders, as a primary obligor and not merely as a surety, the full and punctual payment when due (whether at maturity, by acceleration or otherwise), as well as the performance, of all of the Obligations incurred or owed by or chargeable to the Affiliate Borrowers (the "Affiliate Borrower Obligations"). The Borrower's obligation under this Article IX is an absolute, unconditional and continuing guaranty of the full and punctual payment and performance of all of the Affiliate Borrower Obligations and not of their collectability only and is in no way conditioned upon any requirement that the Agent or the Lenders first attempt to collect any of the Affiliate Borrower Obligations from any Affiliate Borrower or resort to any collateral security, any balance of any deposit account or credit on the books of any Lender in favor of any Affiliate Borrower or any other Person or other means of obtaining payment. Should any Affiliate Borrower default in the payment or performance of any of the Affiliate Borrower Obligations, the Agent or any one of the Lenders may cause the obligations of the Borrower (as guarantor) hereunder with respect to such Affiliate Borrower Obligations to become forthwith due and payable to the Agent and the Lenders, without demand or notice of any nature (other than as expressly provided herein), all of which are expressly waived by the Borrower. 13.2. Borrower's Further Agreements to Pay. The Borrower further agrees, as the principal obligor and not as a guarantor only, to pay to the Agent and the Lenders, forthwith upon demand in funds immediately available to the Agent and the Lenders, all reasonable costs and expenses (including court costs and legal expenses) incurred or expended by the Agent and the Lenders in connection with the Affiliate Borrower Obligations, this Article XIII and the enforcement thereof, together with interest on amounts recoverable under this Article XIII from the time when such amounts become due until payment, at a rate of interest (computed for the actual number of days elapsed based on a 365/6 day year) equal to the Corporate Base Rate plus 2% per annum such changing when and as the Corporate Base Rate changes. 13.3. Waivers by Borrower: Agent's and Lenders' Freedom to Act. The Borrower waives notice of acceptance of this Article XIII, notice of any action taken or omitted by the Agent or any Lender in reliance on this Article XIII, and any requirement that the Agent or the Lenders be diligent or prompt in making demands under this Article XIII, giving notice of any default by any Affiliate Borrower or asserting any other rights of the Agent or any Lender under this Article XIII. The Borrower also irrevocably waives all defenses that at any 77 time may be available in respect of the Affiliate Borrower Obligations by virtue of any statute of limitations, valuation, stay, moratorium law of other similar law now or thereafter in effect. The Borrower also irrevocably waives any benefit of any collateral which may from time to time secure the Affiliate Borrower Obligations and authorizes the Agent and the Lenders to take any action or exercise any remedy with respect thereto which they in their discretion shall determine, without notice to the Borrower. In the event the Agent or the Lenders elect in their discretion to give notice to the Borrower of any action with respect to such collateral, ten days written notice mailed to the Borrower by U.S. mail at its address set forth in this Agreement shall be deemed reasonable notice of the matters contained therein. Each of the Agent and the Lenders shall be at liberty, without giving notice to or obtaining the assent of the Borrower and without relieving the Borrower of any liability under this Article XIII, to deal with any Credit Party and with each other party who now is or after the date hereof becomes liable in any manner for any of the Affiliate Borrower Obligations, in such manner as the Agent or any Lender in its sole discretion deems fit, and to this end the Borrower agrees that the validity and enforceability of this Article XIII shall not be impaired or affected by any of the following: (a) any extension, modification or renewal of, or indulgence with respect to, or substitutions for, the Affiliate Borrower Obligations or any part thereof or any agreement relating thereto at any time; (b) any failure or omission to enforce any right, power or remedy with respect to the Affiliate Borrower Obligations or any part thereof or any agreement relating thereto, or any collateral securing the Affiliate Borrower Obligations or any part thereof; (c) any waiver of any right, power or remedy or of any default with respect to the Affiliate Borrower Obligations or any part thereof or any agreement relating thereto; (d) any release, surrender, compromise, settlement, waiver, subordination or modification, with or without consideration, of any other obligation of any person or entity with respect to the Affiliate Borrower Obligations or any part thereof; (e) the enforceability or validity of the Affiliate Borrower Obligations or any part thereof or the genuineness, enforceability or validity of any agreement relating thereto or with respect to the Affiliate Borrower Obligations or any part thereof; (f) the application of payments received from any source to the payment of indebtedness other than the Affiliate Borrower Obligations, any part thereof or amounts which are not covered by this Article XIII even though the Lenders or the Agent might lawfully have elected to apply such payments to any part or all of the Affiliate Borrower Obligations or to amounts which are not covered by this Article XIII or (g) the existence of any claim, setoff or other rights which the Borrower may have at any time against any of the Affiliate Borrowers in connection herewith or any unrelated transaction, all whether or not the Borrower shall have had notice or knowledge of any act or omission referred to in the foregoing clauses (a) through (g) of this Section 13.3. 13.4. Unenforceability of Affiliate Borrower Obligations Against Affiliate Borrowers. Notwithstanding (a) any change of ownership of any Affiliate Borrower or the insolvency, bankruptcy or any other change in the legal status of any Affiliate Borrower; (b) the change in or the imposition of any law, decree, regulation or other governmental act which does or 78 might impair, delay or in any way affect the validity, enforceability or the payment when due of the Affiliate Borrower Obligations; (c) the failure of any Affiliate Borrower or the undersigned to maintain in full force, validity or effect or to obtain or renew when required all governmental and other approvals, licenses or consents required in connection with the Affiliate Borrower Obligations or this Article XIII, or to take any other action required in connection with the performance of all obligations pursuant to the Affiliate Borrower Obligations or this Article XIII; or (d) if any of the moneys included in the Affiliate Borrower Obligations have become irrecoverable from any Affiliate Borrower for any other reason other than final payment in full of the Affiliate Borrower Obligations in accordance with their terms, this Article XIII shall nevertheless be binding on the Borrower. This Article XIII shall be in addition to any other guaranty or other security for the Affiliate Borrower Obligations, and it shall not be rendered unenforceable by the invalidity of any such other guaranty or security. In the event that acceleration of the time for payment of any of the Affiliate Borrower Obligations is stayed upon the insolvency, bankruptcy or reorganization of any Affiliate Borrower, or for any other reason, all such amounts otherwise subject to acceleration under the terms of the Credit Agreement, the other Loan Documents or any other agreement evidencing, securing or otherwise executed in connection with the Affiliate Borrower Obligations shall be immediately due and payable by the Borrower. 13.5. Subrogation; Subordination. The Borrower shall not enforce or otherwise exercise any right of subrogation to any of the rights of any Lender against any Affiliate Borrower until all of the Affiliate Borrower Obligations are fully and indefeasibly paid in full. The payment of any amounts due with respect to any indebtedness of any Affiliate Borrower now or thereafter owed to the Borrower is hereby subordinated to the prior payment in full of all of the Affiliate Borrower Obligations. The Borrower agrees that, after the occurrence of any default in the payment or performance of any of the Affiliate Borrower Obligations, the Borrower will not demand, sue for or otherwise attempt to collect any such indebtedness of any Affiliate Borrower to the Borrower until all of the Affiliate Borrower Obligations shall have been paid in full. If, notwithstanding the foregoing sentence, the Borrower shall collect, enforce or receive any amounts in respect of such indebtedness while any Affiliate Borrower Obligations are still outstanding, such amounts shall be collected, enforced and received by the Borrower as trustee for the Agent and the Lenders and be paid over to the Agent on account of the Affiliate Borrower Obligations without affecting in any manner the liability of the Borrower under the other provisions of this Article XIII. The provisions of this Section 13.5 shall be supplemental to and not in derogation of any rights and remedies of the Agent and the Lenders under any separate subordination agreement which the Agent and the Lenders may at any time and from time to time enter into with the Borrower. 13.6. Termination. The Borrower's obligations hereunder shall continue in full force and effect until the Affiliate Borrower Obligations are finally paid and satisfied in full and this Agreement is terminated, provided that this Article XIII shall continue to be effective or shall be reinstated, as the case may be, if at any time payment or other satisfaction of any of the Affiliate Borrower Obligations is rescinded or must otherwise be restored or returned upon the bankruptcy, insolvency, or reorganization of any Affiliate Borrower, or otherwise, as 79 though such payment had not been made or other satisfaction occurred, whether or not the Lenders or the Agent is in possession of this Agreement. No invalidity, irregularity or unenforceability by reason of the Bankruptcy Code or any insolvency or other similar law, or any law or order of any government or agency thereof purporting to reduce, amend or otherwise affect the Affiliate Borrower Obligations shall impair, affect, be a defense to or claim against the obligations of the Borrower under this Article XIII. 13.7. Effect of Bankruptcy. The Borrower's obligations under this Article XIII shall survive the insolvency of any Affiliate Borrower and the commencement of any case or proceeding by or against any Affiliate Borrower under the federal Bankruptcy Code or other federal, state or other applicable bankruptcy, insolvency or reorganization statutes. No automatic stay under the federal Bankruptcy Code or other federal, state or other applicable bankruptcy, insolvency or reorganization statutes to which any Affiliate Borrower is subject shall postpone the obligations of the Borrower under this Article XIII. 13.8. Setoff. Regardless of the other means of obtaining payment of any of the Affiliate Borrower Obligations, each of the Agent and the Lenders is hereby authorized at any time and from time to time, without notice to the Borrower (any such notice being expressly waived by the Borrower) and to the fullest extent permitted by law, to set off and apply such deposits and other sums against the obligations of the Borrower under this Article XIII, whether or not the Agent and the Lenders shall have made any demand under this Article XIII and although such obligations may be contingent or unmatured. 13.9. Further Assurances. The Borrower agrees to do all such things and execute all such documents as the Agent and the Lenders may consider necessary or desirable to give full effect to this Article XIII and to perfect and preserve the rights and powers of the Agent and the Lenders hereunder. 13.10. Limitation. The provisions of this Article XIII are severable, and in any action or proceeding involving any state corporate law, or any state or federal bankruptcy, insolvency, reorganization or other law affecting the rights of creditors generally, if the obligations of the Borrower hereunder would otherwise be held or determined to be avoidable, invalid or unenforceable on account of the amount of the Borrower's liability under this guaranty, then, notwithstanding any other provision of this guaranty to the contrary, the amount of such liability shall, without any further action by the Borrower, the Agent or any Lender, be automatically limited and reduced to the highest amount that is valid and enforceable as determined in such action or proceeding. 80 ARTICLE XIV NOTICES ------- Except as otherwise permitted by Section 2.2.5 with respect to borrowing notices, any notice required or permitted to be given under this Agreement shall be sent by United States mail, telegraph, telex, FAX or nationally established overnight courier service, and shall be deemed received (i) when received by the addressee if sent via the United States mail, postage prepaid, (ii) when delivered to the appropriate office or machine operator for transmission, charges prepaid, if sent by telegraph or telex (answerback confirmed in the case of telexes), (iii) when receipt thereof by the addressee is confirmed by telephone if sent by FAX and (iv) one business day after delivery to an overnight courier service, if sent by such service, in each case addressed to the relevant party at the address set forth for such party on the signature pages hereto or at such other address as may be designated by such party in a notice to the other parties. ARTICLE XV COUNTERPARTS ------------ This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Agreement by signing any such counterpart. This Agreement shall be effective when it has been executed by the Borrower, the Affiliate Borrowers, the Borrowing Base Parties, the Agent and the Lenders and each party has notified the Agent by telex or telephone, that it has taken such action. 81 IN WITNESS WHEREOF, the Borrower, the Affiliate Borrowers, the Borrowing Base Parties, the Lenders and the Agent have executed this Agreement as of the date first above written. BIG O TIRES, INC. as the Borrower By: /s/ John B. Adams ------------------ Print Name: John B. Adams Title: Executive V.P. & C.F.O. 11755 East Peakview Avenue Englewood, Colorado 80111 Attention: John B. Adams Executive Vice President and Chief Financial Officer FAX: (303) 790-6064 Telephone: (303) 790-2800 BIG O DEVELOPMENT, INC. as an Affiliate Borrower By: /s/ John B. Adams ---------------------- Print Name: John B. Adams Title: V.P. 11755 East Peakview Avenue Englewood, Colorado 80111 Attention: John B. Adams Vice President and Chief Financial Officer FAX: (303) 790-6064 Telephone: (303) 790-2800 82 BIG O TIRE OF IDAHO, INC. as a Borrowing Base Party By: /s/ John B. Adams Print Name: John B. Adams Attention: John B. Adams Vice President and Chief Financial Officer FAX: (303) 790-6064 Telephone: (303) 790-2800 Commitments ----------- $20,000,000 THE FIRST NATIONAL BANK OF CHICAGO Individually, as Agent and as Issuer By: /s/ Nathan L. Bloch ------------------------ Print Name: Nathan L. Bloch Title: Vice President Address: One First National Plaza, Ste. 0088 Chicago, Illinois 60670 Attention: Nathan L. Bloch, Vice President FAX: (312) 732-5161 Telephone: (312) 732-2243 s:\coml\kwh\bigo\revolv.ca 83 EXHIBIT "A" NOTE $____________ January 23, 1995 ______________ , a _______________corporation (the "[Affiliate] Borrower"), promises to pay to the order of __________________________________ (the "Lender") the lesser of the principal sum of __________________ Dollars or the aggregate unpaid principal amount of all Loans made by the Lender to the [Affiliate] Borrower pursuant to Article II of the Credit Agreement (as the same may be amended or modified, the "Agreement") hereinafter referred to, in immediately available funds at the main office of The First National Bank of Chicago in Chicago, Illinois, as Agent, together with interest on the unpaid principal amount hereof at the rates and on the dates set forth in the Agreement. The [Affiliate] Borrower shall pay the principal of and accrued and unpaid interest on the Loans in full on the Facility Termination Date. The Lender shall, and is hereby authorized to, record on the schedule attached hereto, or to otherwise record in accordance with its usual practice, the date and amount of each Loan and the date and amount of each principal payment hereunder. This Note is one of the Notes issued pursuant to, and is entitled to the benefits of, the Credit Agreement, dated as of January 23, 1995 among [the Borrower/Big O Tires, Inc.], the Affiliate Borrowers, the Borrowing Base Parties, The First National Bank of Chicago, individually, as Issuer and as Agent, and the lenders named therein, including the Lender, to which Agreement, as it may be amended from time to time, reference is hereby made for a statement of the terms and conditions governing this Note, including the terms and conditions under which this Note may be prepaid or its maturity date accelerated. Capitalized terms used herein and not otherwise defined herein are used with the meanings attributed to them in the Agreement. By: Print Name: Title: 84 SCHEDULE OF LOANS AND PAYMENTS OF PRINCIPAL TO NOTE OF _________________, DATED JANUARY 23, 1995
Maturity Maturity Principal Maturity Principal Amount of of Interest Amount Unpaid Date Loan Period Paid Balance ---------- --------- ----------- --------- -------
85 EXHIBIT "B" FORM OF OPINION January 23, 1995 The First National Bank of Chicago One First National Plaza Chicago, Illinois 60670 Gentlemen/Ladies: We are counsel for ________________________ (the "Borrower"), Big O Development, Inc. ("BODI" or the "Affiliate Borrower") and Big O Tire of Idaho, Inc. (a "Borrowing Base Party"; collectively, together with the Borrower and BODI, the "Initial Obligors") and have represented the Initial Obligors in connection with their execution and delivery of a Revolving Credit Agreement among the Initial Obligors and The First National Bank of Chicago, as a Lender, as Issuer and as Agent dated as of ____________ (the "Agreement"). All capitalized terms used in this opinion and not otherwise defined shall have the meanings attributed to them in the Agreement. We have examined each Initial Obligor's articles of incorporation, by-laws, resolutions, the Loan Documents and such other matters of fact and law which we deem necessary in order to render this opinion. Based upon the foregoing, it is our opinion that: l. The Borrower, each of its Subsidiaries and BODI are corporations duly incorporated, validly existing and in good standing under the laws of their states of incorporation and have all requisite authority to conduct their business in each jurisdiction in which their business is conducted. 2. The execution and delivery of the Loan Documents by the Initial Obligors and the performance by the Initial Obligors of the Obligations have been duly authorized by all necessary corporate action and proceedings on the part of each Initial Obligor and will not: (a) require any consent of the Initial Obligors' shareholders; (b) violate any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on the Borrower, any of its Subsidiaries or BODI or the Borrower's, any Subsidiary's or BODI's articles of incorporation or by-laws or any indenture, instrument or agreement binding upon the Borrower, any of its Subsidiaries or BODI; or 86 (c) result in, or require, the creation or imposition of any Lien pursuant to the provisions of any indenture, instrument or agreement binding upon the Borrower, any of its Subsidiaries or BODI. 3. The Loan Documents have been duly executed and delivered by each Initial Obligor and constitute legal, valid and binding obligations of each Initial Obligor enforceable in accordance with their respective terms except to the extent the enforcement thereof may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally and subject also to the availability of equitable remedies if equitable remedies are sought. Without limiting the effect of the preceding sentence, the guaranty by the Borrower of the Affiliate Borrower Obligations set forth in Article XIII of the Credit Agreement constitutes a legal, valid and binding obligation of the Borrower enforceable in accordance with its terms except to the extent the enforcement thereof may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally and subject also to the availability of equitable remedies if equitable remedies are sought. 4. There is no litigation or proceeding against the Borrower, any of its Subsidiaries or BODI which, if adversely determined, could have a Material Adverse Effect or an Affiliate MAE. 5. No approval, authorization, consent, adjudication or order of any governmental authority, which has not been obtained by the Borrower, any of its Subsidiaries or BODI, is required to be obtained by the Borrower, any of its Subsidiaries or BODI in connection with the execution and delivery of the Loan Documents, the borrowings under the Agreement or in connection with the payment by any Initial Obligor of the Obligations. This opinion may be relied upon by the Agent, the Lenders and their participants, assignees and other transferees. Very truly yours, 87 EXHIBIT "C" AFFILIATE BORROWER COUNTERPART Dated as of ______________, 199 Reference is made to the Revolving Credit Agreement, dated as of January 23, 1995 (the "Agreement"), among Big O Tires, Inc. (the "Borrower"), the Affiliate Borrowers, the Borrowing Base Parties, the Lenders and The First National Bank of Chicago, as Issuer and as Agent. Terms not defined herein which are defined in the Agreement have for the purposes hereof the meanings provided therein. By its execution hereof, [name of Affiliate Borrower], a [jurisdiction of incorporation] corporation (the "New Affiliate Borrower"), hereby elects to be an Affiliate Borrower for purposes of the Agreement, effective as of the date hereof. The New Affiliate Borrower confirms that the representations and warranties set forth in Article V-A of the Agreement are true and correct in all material respects as of the date hereof, and the New Affiliate Borrower hereby agrees to perform all of its obligations as a "Affiliate Borrower" under, and to be bound in all respects by the terms of, the Agreement, the same as if the New Affiliate Borrower were a signatory "Affiliate Borrower" thereto. The address (including telephone and telecopy numbers) to which all notices to the New Affiliate Borrower under the Agreement should be directed is: [NEW AFFILIATE BORROWER] By: Title: 88 The undersigned hereby confirms that [name of Affiliate Borrower] is an "Affiliate Borrower" for purposes of the Agreement described above and reaffirms its obligations under Article XIII of the Agreement with respect to the New Affiliate Borrower. BIG O TIRES, INC. By: Title: The undersigned consent(s) to the addition of [Name of new Affiliate Borrower] as an Affiliate Borrower under the Agreement effective as of the date set forth above. THE FIRST NATIONAL BANK OF CHICAGO, as Agent, Issuer and Lender By: Title: 89 EXHIBIT "D" COMPLIANCE CERTIFICATE To: The Lenders parties to the Credit Agreement Described Below This Compliance Certificate is furnished pursuant to that certain Revolving Credit Agreement dated as of January 23, 1995 (as amended, modified, renewed or extended from time to time, the "Agreement") among the Borrower, the Affiliate Borrowers, the Borrowing Base Parties, the lenders party thereto and The First National Bank of Chicago, as Agent for the Lenders. Unless otherwise defined herein, capitalized terms used in this Compliance Certificate have the meanings ascribed thereto in the Agreement. THE UNDERSIGNED HEREBY CERTIFIES THAT: 1. I am the duly elected _____________________ of the Borrower; 2. I have reviewed the terms of the Agreement and I have made, or have caused to be made under my supervision, a detailed review of the transactions and conditions of the Borrower and its Subsidiaries during the accounting period covered by the attached financial statements; 3. The examinations described in paragraph 2 did not disclose, and I have no knowledge of, the existence of any condition or event which constitutes a Default or Unmatured Default during or at the end of the accounting period covered by the attached financial statements or as of the date of this Certificate, except as set forth below; and 4. Schedule I attached hereto sets forth financial data and computations evidencing the Borrower's compliance with certain covenants of the Agreement, all of which data and computations are true, complete and correct. Described below are the exceptions, if any, to paragraph 3 by listing, in detail, the nature of the condition or event, the period during which it has existed and the action which the Borrower has taken, is taking, or proposes to take with respect to each such condition or event: 90 The foregoing certifications, together with the computations set forth in Schedule I hereto and the financial statements delivered with this Certificate in support hereof, are made and delivered this ____ day of ______________, 19___. 91 [SAMPLE] SCHEDULE I TO COMPLIANCE CERTIFICATE Schedule of Compliance as of with Provisions of ______ and ________ of the Agreement 92 EXHIBIT "E" BORROWING BASE CERTIFICATE Data as of _________, 199 ($000) Accounts Receivable Availability Calculation -------------------------------------------- Gross Accounts Receivable $ Less: Average discounts, credits and allowances $ 90 Days Past Due/1/ 15% Cross Age Intercompany Consignment Receivables Accounts in Legal Action (current portion) Warranty Set-Aside (1/4 of 12 mos.) Convention Reserve Other Ineligibles Add: Accrued [current month] Royalties which are in General Ledger but not in aging ( ) Total Ineligibles $ Total Eligible Receivables Advance Rate x 85% Net Availability (Accounts Receivable) $ Inventory Availability Calculation ---------------------------------- Class I (New tires, used tires, seconds and retreads, wheels and wheel accessories, shock absorbers, struts and coils) Gross Class I FIFO Inventory $ Less /2/: Supplies $ Consignment Inventory Equipment Obsolete Wheel Reserve Unrealized Intercompany Profit Unamortized Price Reductions /1/ Or, with respect to accounts subject to agreed special dating programs, ineligible under Section 2.11.2(i). /2/ Relating to Class I Inventory 93 Writedowns to Net Realizable Value In-Transit/3/ Other Ineligibles Total Ineligibles/ 2/ $ --------------------- Total Eligible Class I Inventory Advance Rate for Class I Inventory x65% Net Availability (Class I Inventory) $ Class II (All Inventory not included in Class I) -------- Gross Class II FIFO Inventory $ Less /4/: Supplies $ Consignment Inventory Equipment Obsolete Wheel Reserve Unrealized Intercompany Profit Unamortized Price Reductions Writedowns to Net Realizable Value In-Transit Other Ineligibles Total Ineligibles /4/ $ Total Eligible Class II Inventory Advance Rate for Class II Inventory x40% Net Availability (Class II Inventory) $ Net Availability (all Inventory) /5/ $ TOTAL AVAILABILITY (INVENTORY AND ACCOUNTS RECEIVABLE) $ /2/ Relating to Class I Inventory /3/ Pursuant to Section 2.11.8(ii) /4/ Relating To Class II Inventory /5/ Not to exceed 80% of Total Availability; if calculation would otherwise show Net Availability (all Inventory) exceeding 80% of Total Availability, Net Availability (all Inventory) shall be reduced to an amount equal to 80% of Total Availability. 94 EXHIBIT "F" LOAN/CREDIT RELATED MONEY TRANSFER INSTRUCTION To The First National Bank of Chicago, as Agent (the "Agent") under the Credit Agreement Described Below. Re: Revolving Credit Agreement dated as of January 23, 1995 (as amended, modified, renewed or extended from time to time, the "Agreement") among the Borrower, the Affiliate Borrowers, the Borrowing Base Parties, the lenders party thereto and The First National Bank of Chicago, as Agent for the Lenders. Terms used herein and not otherwise defined shall have the meanings assigned thereto in the Agreement. The Agent is specifically authorized and directed to act upon the following standing money transfer instructions with respect to the proceeds of Advances or other extensions of credit from time to time until receipt by the Agent of a specific written revocation of such instructions by the Borrower, provided, however, that the Agent may otherwise transfer funds as hereafter directed in writing by the Borrower in accordance with Article XIV of the Agreement or based on any telephonic notice made in accordance with Section 2.6 of the Agreement. Facility Identification Number(s) Customer/Account Name _____ Transfer Funds To For Account No. _____ __ Reference/Attention To Authorized Officer (Customer Representative) Date (Please Print) Signature Bank Officer Name Date (Please Print) Signature (Deliver Completed Form to Credit Support Staff For Immediate Processing) 95 EXHIBIT "G" DISBURSEMENT INFORMATION RE PROPERTY DEVELOPMENT LOAN TO AFFILIATE BORROWER (In Dollars)
Location Current Advances To Estimated Total Estimated Estimated (City, State) Borrowing Date Total to Estimate of Completion Refinancing Request (B) Completion Costs Date or Sale (A) (C) (A+B+C) (MO., YR.) Date (MO., YR.) Total ===================================================================================================
96 EXHIBIT "H" ASSIGNMENT AGREEMENT This Assignment Agreement (this "Assignment Agreement") between __________________________ (the "Assignor") and __________________ (the "Assignee") is dated as of _________________, 19__. The parties hereto agree as follows: 1. PRELIMINARY STATEMENT. The Assignor is a party to a Credit Agreement (which, as it may be amended, modified, renewed or extended from time to time is herein called the "Credit Agreement") described in Item 1 of Schedule 1 attached hereto ("Schedule 1"). Capitalized terms used herein and not otherwise defined herein shall have the meanings attributed to them in the Credit Agreement. 2. ASSIGNMENT AND ASSUMPTION. The Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, an interest in and to the Assignor's rights and obligations under the Credit Agreement such that after giving effect to such assignment the Assignee shall have purchased pursuant to this Assignment Agreement the percentage interest specified in Item 3 of Schedule 1 of all outstanding rights and obligations under the Credit Agreement relating to the facilities listed in Item 3 of Schedule 1 and the other Loan Documents. The aggregate Commitment (or Loans, if the applicable Commitment has been terminated) purchased by the Assignee hereunder is set forth in Item 4 of Schedule 1. 3. EFFECTIVE DATE. The effective date of this Assignment Agreement (the "Effective Date") shall be the later of the date specified in Item 5 of Schedule 1 or two Business Days (or such shorter period agreed to by the Agent) after a Notice of Assignment substantially in the form of Exhibit "I" attached hereto has been delivered to the Agent. Such Notice of Assignment must include any consents required to be delivered to the Agent by Section [12.3.1] of the Credit Agreement. In no event will the Effective Date occur if the payments required to be made by the Assignee to the Assignor on the Effective Date under Sections 4 and 5 hereof are not made on the proposed Effective Date. The Assignor will notify the Assignee of the proposed Effective Date no later than the Business Day prior to the proposed Effective Date. As of the Effective Date, (i) the Assignee shall have the rights and obligations of a Lender under the Loan Documents with respect to the rights and obligations assigned to the Assignee hereunder and (ii) the Assignor shall relinquish its rights and be released from its corresponding obligations under the Loan Documents with respect to the rights and obligations assigned to the Assignee hereunder. 4. PAYMENTS OBLIGATIONS. On and after the Effective Date, the Assignee shall be entitled to receive from the Agent all payments of principal, interest and fees with respect to the interest assigned hereby. The Assignee shall advance funds directly to the Agent with respect to all Loans and reimbursement payments made on or after the Effective Date with respect to the interest assigned hereby. [In consideration for the sale and 97 assignment of Loans hereunder, (i) the Assignee shall pay the Assignor, on the Effective Date, an amount equal to the principal amount of the portion of all Floating Rate Loans assigned to the Assignee hereunder and (ii) with respect to each Eurodollar Loan made by the Assignor and assigned to the Assignee hereunder which is outstanding on the Effective Date, (a) on the last day of the Interest Period therefor or (b) on such earlier date agreed to by the Assignor and the Assignee or (c) on the date on which any such Eurodollar Loan either becomes due (by acceleration or otherwise) or is prepaid (the date as described in the foregoing clauses (a), (b) or (c) being hereinafter referred to as the "Payment Date"), the Assignee shall pay the Assignor an amount equal to the principal amount of the portion of such Eurodollar Loan assigned to the Assignee which is outstanding on the Payment Date. If the Assignor and the Assignee agree that the Payment Date for such Eurodollar Loan shall be the Effective Date, they shall agree to the interest rate applicable to the portion of such Loan assigned hereunder for the period from the Effective Date to the end of the existing Interest Period applicable to such Eurodollar Loan (the "Agreed Interest Rate") and any interest received by the Assignee in excess of the Agreed Interest Rate shall be remitted to the Assignor. In the event interest for the period from the Effective Date to but not including the Payment Date is not paid by the Borrower with respect to any Eurodollar Loan sold by the Assignor to the Assignee hereunder, the Assignee shall pay to the Assignor interest for such period on the portion of such Eurodollar Loan sold by the Assignor to the Assignee hereunder at the applicable rate provided by the Credit Agreement. In the event a prepayment of any Eurodollar Loan which is existing on the Payment Date and assigned by the Assignor to the Assignee hereunder occurs after the Payment Date but before the end of the Interest Period applicable to such Eurodollar Loan, the Assignee shall remit to the Assignor the excess of the prepayment penalty paid with respect to the portion of such Eurodollar Loan assigned to the Assignee hereunder over the amount which would have been paid if such prepayment penalty was calculated based on the Agreed Interest Rate. The Assignee will also promptly remit to the Assignor (i) any principal payments received from the Agent with respect to Eurodollar Loans prior to the Payment Date and (ii) any amounts of interest on Loans and fees received from the Agent which relate to the portion of the Loans assigned to the Assignee hereunder for periods prior to the Effective Date, in the case of Floating Rate Loans or fees, or the Payment Date, in the case of Eurodollar Loans, and not previously paid by the Assignee to the Assignor.]* In the event that either party hereto receives any payment to which the other party hereto is entitled under this Assignment Agreement, then the party receiving such amount shall promptly remit it to the other party hereto. *Each Assignor may insert its standard payment provisions in lieu of the payment terms included in this Exhibit. 5. FEES PAYABLE BY THE ASSIGNEE. The Assignee shall pay to the Assignor a fee on each day on which a payment of interest or [commitment] fees is made under the Credit Agreement with respect to the amounts assigned to the Assignee hereunder (other than a payment of interest or commitment fees for the period prior to the Effective Date or, in the case of Eurodollar Loans, the Payment Date, which the Assignee is obligated to deliver to the Assignor pursuant to Section 4 hereof). The amount of such fee shall be the difference between (i) the interest or fee, as applicable, paid with respect to the amounts assigned to the Assignee hereunder and (ii) the interest or fee, as applicable, which would have been paid with respect to the amounts assigned to the Assignee hereunder if each interest rate was ___ of 1% less than the interest rate paid by the Borrower or if the commitment fee was ___ of 98 1% less than the commitment fee paid by the Borrower, as applicable. In addition, the Assignee agrees to pay ___% of the recordation fee required to be paid to the Agent in connection with this Assignment Agreement. 6. REPRESENTATIONS OF THE ASSIGNOR; LIMITATIONS ON THE ASSIGNOR'S LIABILITY. The Assignor represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim created by the Assignor. It is understood and agreed that the assignment and assumption hereunder are made without recourse to the Assignor and that the Assignor makes no other representation or warranty of any kind to the Assignee. Neither the Assignor nor any of its officers, directors, employees, agents or attorneys shall be responsible for (i) the due execution, legality, validity, enforceability, genuineness, sufficiency or collectability of any Loan Document, including without limitation, documents granting the Assignor and the other Lenders a security interest in assets of the Borrower or any guarantor, (ii) any representation, warranty or statement made in or in connection with any of the Loan Documents, (iii) the financial condition or creditworthiness of the Borrower or any guarantor, (iv) the performance of or compliance with any of the terms or provisions of any of the Loan Documents, (v) inspecting any of the Property, books or records of the Borrower, (vi) the validity, enforceability, perfection, priority, condition, value or sufficiency of any collateral securing or purporting to secure the Loans or (vii) any mistake, error of judgment, or action taken or omitted to be taken in connection with the Loans or the Loan Documents. 7. REPRESENTATIONS OF THE ASSIGNEE. The Assignee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements requested by the Assignee and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment Agreement, (ii) agrees that it will, independently and without reliance upon the Agent, the Assignor or any other Lender and based on such documents and information at it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, (iii) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Loan Documents as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto, (iv) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender, (v) agrees that its payment instructions and notice instructions are as set forth in the attachment to Schedule 1, (vi) confirms that none of the funds, monies, assets or other consideration being used to make the purchase and assumption hereunder are "plan assets" as defined under ERISA and that its rights, benefits and interests in and under the Loan Documents will not be "plan assets" under ERISA, [(vii) confirms that it is an Eligible Assignee,]* [and (viii) attaches the forms prescribed by the Internal Revenue Service of the United States certifying that the Assignee is entitled to receive payments under the Loan Documents without deduction or withholding of any United States federal income taxes].** *to be inserted if required by the Credit Agreement. 99 **to be inserted if the Assignee is not incorporated under the laws of the United States, or a state thereof. 8. INDEMNITY. The Assignee agrees to indemnify and hold the Assignor harmless against any and all losses, costs and expenses (including, without limitation, reasonable attorneys' fees) and liabilities incurred by the Assignor in connection with or arising in any manner from the Assignee's non-performance of the obligations assumed under this Assignment Agreement. 9. SUBSEQUENT ASSIGNMENTS. After the Effective Date, the Assignee shall have the right pursuant to Section [12.3.1] of the Credit Agreement to assign the rights which are assigned to the Assignee hereunder to any entity or person, provided that (i) any such subsequent assignment does not violate any of the terms and conditions of the Loan Documents or any law, rule, regulation, order, writ, judgment, injunction or decree and that any consent required under the terms of the Loan Documents has been obtained and (ii) unless the prior written consent of the Assignor is obtained, the Assignee is not thereby released from its obligations to the Assignor hereunder, if any remain unsatisfied, including, without limitation, its obligations under [Sections 4, 5 and 8] hereof. 10. REDUCTIONS OF AGGREGATE COMMITMENT. If any reduction in the Aggregate Commitment occurs between the date of this Assignment Agreement and the Effective Date, the percentage interest specified in Item 3 of Schedule 1 shall remain the same, but the dollar amount purchased shall be recalculated based on the reduced Aggregate Commitment. 11. ENTIRE AGREEMENT. This Assignment Agreement and the attached Notice of Assignment embody the entire agreement and understanding between the parties hereto and supersede all prior agreements and understandings between the parties hereto relating to the subject matter hereof. 12. GOVERNING LAW. This Assignment Agreement shall be governed by the internal law, and not the law of conflicts, of the State of Illinois. 13. NOTICES. Notices shall be given under this Assignment Agreement in the manner set forth in the Credit Agreement. For the purpose hereof, the addresses of the parties hereto (until notice of a change is delivered) shall be the address set forth in the attachment to Schedule 1. 100 IN WITNESS WHEREOF, the parties hereto have executed this Assignment Agreement by their duly authorized officers as of the date first above written. [NAME OF ASSIGNOR] By: _____ Title: [NAME OF ASSIGNEE] By: Title: _____ 101 SCHEDULE 1 to Assignment Agreement 1. Description and Date of Credit Agreement:
2. Date of Assignment Agreement: , 19 3. Amounts (As of Date of Item 2 above): Facility Facility Facility Facility 1* 2* *3 *4 ------------------------------------- -------- -------- -------- a. Total of Commitments (Loans)** under Credit Agreement $ $ $ $ b. Assignee's Percentage of each Facility purchased under the Assignment Agreement*** % % % % c. Amount of Assigned Share in each Facility purchased under the Assignment Agreement $ $ $ $
4. Assignee's Aggregate (Loan Amount)** Commitment Amount Purchased Hereunder: $_________ 5. Proposed Effective Date: Accepted and Agreed: [NAME OF ASSIGNOR] [NAME OF ASSIGNEE] By: By: Title: ___ __ Title: * Insert specific facility names per Credit Agreement ** If a Commitment has been terminated, insert outstanding Loans in place of Commitment *** Percentage taken to 10 decimal places 102 Attachment to SCHEDULE 1 to ASSIGNMENT AGREEMENT Attach Assignor's Administrative Information Sheet, which must include notice address for the Assignor and the Assignee 103 EXHIBIT "I" to Assignment Agreement NOTICE OF ASSIGNMENT ------------- ____________________, 19__ -------------------- To: [NAME OF BORROWER]* [NAME OF AGENT] From: [NAME OF ASSIGNOR] (the "Assignor") [NAME OF ASSIGNEE] (the "Assignee") 1. We refer to that Credit Agreement (the "Credit Agreement") described in Item 1 of Schedule 1 attached hereto ("Schedule 1"). Capitalized terms used herein and not otherwise defined herein shall have the meanings attributed to them in the Credit Agreement. 2. This Notice of Assignment (this "Notice") is given and delivered to ****[the Borrower and]**** the Agent pursuant to Section [12.3.2] of the Credit Agreement. 3. The Assignor and the Assignee have entered into an Assignment Agreement, dated as of ___________, 19__ (the "Assignment"), pursuant to which, among other things, the Assignor has sold, assigned, delegated and transferred to the Assignee, and the Assignee has purchased, accepted and assumed from the Assignor the percentage interest specified in Item 3 of Schedule 1 of all outstandings, rights and obligations under the Credit Agreement relating to the facilities listed in Item 3 of Schedule 1. The Effective Date of the Assignment shall be the later of the date specified in Item 5 of Schedule 1 or two Business Days (or such shorter period as agreed to by the Agent) after this Notice of Assignment and any consents and fees required by Sections [12.3.1 and 12.3.2] of the Credit Agreement have been delivered to the Agent, provided that the Effective Date shall not occur if any condition precedent agreed to by the Assignor and the Assignee has not been satisfied. *To be included only if consent must be obtained from the Borrower pursuant to Section 12.3.1 of the Credit Agreement. 104 4. The Assignor and the Assignee hereby give to the Borrower and the Agent notice of the assignment and delegation referred to herein. The Assignor will confer with the Agent before the date specified in Item 5 of Schedule 1 to determine if the Assignment Agreement will become effective on such date pursuant to Section 3 hereof, and will confer with the Agent to determine the Effective Date pursuant to Section 3 hereof if it occurs thereafter. The Assignor shall notify the Agent if the Assignment Agreement does not become effective on any proposed Effective Date as a result of the failure to satisfy the conditions precedent agreed to by the Assignor and the Assignee. At the request of the Agent, the Assignor will give the Agent written confirmation of the satisfaction of the conditions precedent. 5. The Assignor or the Assignee shall pay to the Agent on or before the Effective Date the processing fee of $2,500 required by Section 12.3.2 of the Credit Agreement. 6. If Notes are outstanding on the Effective Date, the Assignor and the Assignee request and direct that the Agent prepare and cause the Borrower to execute and deliver new Notes or, as appropriate, replacements notes, to the Assignor and the Assignee. The Assignor and, if applicable, the Assignee each agree to deliver to the Agent the original Note received by it from the Borrower upon its receipt of a new Note in the appropriate amount. 7. The Assignee advises the Agent that notice and payment instructions are set forth in the attachment to Schedule 1. 8. The Assignee hereby represents and warrants that none of the funds, monies, assets or other consideration being used to make the purchase pursuant to the Assignment are "plan assets" as defined under ERISA and that its rights, benefits, and interests in and under the Loan Documents will not be "plan assets" under ERISA. 9. The Assignee authorizes the Agent to act as its agent under the Loan Documents in accordance with the terms thereof. The Assignee acknowledges that the Agent has no duty to supply information with respect to the Borrower or the Loan Documents to the Assignee until the Assignee becomes a party to the Credit Agreement.* *May be eliminated if Assignee is a party to the Credit Agreement prior to the Effective Date. NAME OF ASSIGNOR NAME OF ASSIGNEE By: By: Title: Title: 105 ACKNOWLEDGED [AND CONSENTED ACKNOWLEDGED [AND CONSENTED TO] TO BY [NAME OF AGENT] BY [NAME OF BORROWER] By: By: Title: Title: _____ [Attach photocopy of Schedule 1 to Assignment] 106 SCHEDULE "1" LOCATIONS OF INVENTORY (See Sections 2.11.8 and 2.11.9) A. Properties Owned by a Borrowing Base Party (show name of owner): ------------------------------------------ Big O Development, Inc: 3511 South T.K. Avenue 875 American Pacific Drive Boise, ID 83705 Henderson, NV 80914 640 Park East Blvd. New Albany, IN 47150 B. Properties Leased by a Borrowing Base Party (show name of owner and ------------------------------------------- landlord's name): The Prudential Insurance Company of America: 5400 E. Francis Ontario, CA 91761 BOTAC VI Leasing, LLC: 11755 East Peakview Avenue Englewood, CO 80111 C. Public Warehouses or other Locations pursuant to Bailment Arrangements ---------------------------------------------------------------------- (include name of warehouse operator or other bailee): None. 107 SCHEDULE "2" LITIGATION (See Sections 5.7, 5A.7) 108
SCHEDULE "3" SUBSIDIARIES AND OTHER INVESTMENTS AMOUNT OF JURISDICTION OWNED INVESTMENT PERCENT OF INVESTMENT IN: BY: AT 12/31/94 OWNERSHIP ORGANIZATION ---------------------------------- ----------------------------- -------------- ---------- ------------- BIG O TIRE OF IDAHO, INC. BIG O TIRES, INC. $ 1,301,382 100% IDAHO BIG O RETAIL ENTERPRISES, INC. BIG O TIRES, INC. $ 1,590,371 100% COLORADO BIG O DEVELOPMENT, INC. BIG O TIRES, INC. $ 50,000 100% COLORADO O ADVERTISING, INC. BIG O TIRES, INC. $ 1,000 100% COLORADO BIG O/CSB JOINT VENTURE BIG O RETAIL ENTERPRISES, INC. $ 148,714 50% CALIFORNIA BIG O/SANDS JOINT VENTURE BIG O RETAIL ENTERPRISES, INC. $ 0 50% ARIZONA BIG O/HERBERT HAWLEY JOINT VENTURE BIG O RETAIL ENTERPRISES, INC. $ 71,993 50% COLORADO BIG O/CMT JOINT VENTURE BIG O RETAIL ENTERPRISES, INC. $ 0 50% CALIFORNIA B & G TETON JOINT VENTURE BIG O RETAIL ENTERPRISES, INC. $ 84,990 50% WYOMING TIRE INDUSTRIES, INC. BIG O RETAIL ENTERPRISES, INC. $ 133,397 50% UTAH APEX TIRE, INC. BIG O RETAIL ENTERPRISES, INC. $ 206,860 51% UTAH B&D MANAGEMENT, INC. BIG O RETAIL ENTERPRISES, INC. $ 305,694 51% UTAH INTERMOUNTAIN REALTY BIG O DEVELOPMENT, INC. $ 538,231 50% COLORADO SCB GROUP BIG O DEVELOPMENT, INC. $ 35,069 50% CALIFORNIA SUMMIT TIRE AND BATTERY, INC. BIG O TIRES, INC. $ 46,600 10% FLORIDA
109 SCHEDULE "4" ENVIRONMENTAL MATTERS (See Section 5.14) Big O Tires, Inc. ("Big O") has been designated as a Potentially Responsible Party ("PRP") with regard to the Lowry Landfill a waste site that has been designated by the appropriate environmental authorities as a "Super Fund Site". This designation occurred in the late 1970s, primarily because Big O's predecessor company, Big O Tire Dealers, Inc. was an operating business in the Denver metropolitan area at that time. While the designation PRP apparently continues today, it appears that Big O will not be called upon to share in any responsibility for the clean up of this site. 110
SCHEDULE "5" INDEBTEDNESS AND LIENS ============================================================================================================================ AMOUNT MATURITY OF INDEBTEDNESS INDEBTEDNESS INCURRED BY INDEBTEDNESS OWED TO PROPERTY ENCUMBERED INDEBTEDNESS AT 12/31/94 ============================================================================================================================= Big O Tires, Inc. USG Annuity & Life Company 877 Cotting Court 2004 $5,000,000 Big O Development, Inc. Republic Western Insurance Vacaville, California 2004 $3,000,000 Big O Tire of Idaho, Inc. Company 3511 So. T.K. Avenue Boise, Idaho 875 American Pacific Drive Henderson, Nevada (when acquired) ----------------------------------------------------------------------------------------------------------------------------- Big O Tires, Inc. The Kelly-Springfield Tire Inventory 11/15/97 $4,355,339 Big O Tire of Idaho, Inc. Company Big O Retail Enterprises, Inc. ----------------------------------------------------------------------------------------------------------------------------- Big O Tires, Inc. Solano County, California 877 Cotting Court 1999 $32,837 Vaca Valley Industrial Park Vacaville, California ----------------------------------------------------------------------------------------------------------------------------- Big O Development, Inc. National City Bank 501 Park East Blvd. 09/01/2001 $1,475,000 New Albany, Indiana ----------------------------------------------------------------------------------------------------------------------------- Big O Development, Inc. The Steve and Bette Gibson Real Property located in 01/31/1995 $312,000 Charitable Remainder Unitrust Maricopa County, Arizona ----------------------------------------------------------------------------------------------------------------------------- Big O Development, Inc. AT & T Commercial Finance 544 North State Street 07/01/2004 $412,565 Corporation Lake Oswego, Oregon ----------------------------------------------------------------------------------------------------------------------------- Big O Development, Inc. Jack and Margaret Thorburn Parcel II, K-Mart Shopping 04/30/1995 $200,000 Center Ramona, California ----------------------------------------------------------------------------------------------------------------------------- Big O Retail Enterprises, Inc. Colonial Pacific Leasing Equipment at 1530 S. Gilbert 04/01/1997 $82,406 Road Mesa, Arizona ==============================================================================================================================
111 SCHEDULE "6" INTELLECTUAL PROPERTY (See Section 5.19) 112 EX-10.78 19 CON ACKNOW & ACCESS EXHIBIT 10.78 CONSENT, ACKNOWLEDGMENT AND ACCESS AGREEMENT -------------------------------------------- This Consent, Acknowledgment and Access Agreement (this "Agreement") is made and entered into as of this 23rd day of January, 1995 by and between The Bank of Cherry Creek, N.A., a national banking association, and Kenneth B. Buckius, an individual (collectively, "Trustees"), both having a business address at 3033 East First Avenue, Denver, Colorado 80206, and The First National Bank of Chicago, a national banking association ("FNBC"), having its principal office at One First National Plaza, Chicago, Illinois 60670, with reference to the following facts: RECITALS -------- A. FNBC, as agent and as a lender, Big O Tires, Inc., a Nevada corporation ("Big O"), Big O Tire of Idaho, Inc., an Idaho Corporation ("Idaho") and Big O Development, Inc., a Colorado corporation ("BODI"; Big O, Idaho and BODI are sometimes herein collectively referred to as the "Big O Parties"), are entering into a Revolving Credit Agreement dated as of January 23, 1995 (the "Credit Agreement; capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Credit Agreement), pursuant to which FNBC agrees to make loans and provide certain other financial accommodations to the Big O Parties. B. All of the Bank Debt (as hereinafter defined) is secured by the grant to FNBC,as agent, of liens on and security interests in the Bank Collateral (as hereinafter defined). C. Trustees, Big O, Idaho and BODI are parties to that certain Indenture, Mortgage, Deed of Trust, Security Agreement, and Financing Statement (Fixture Filing) dated as of April 27, 1994 (the "Indenture and Security Agreement") (Big 0, Idaho and BODI are sometimes hereinafter referred to collectively in their capacities under the Indenture and Security Agreement as "Grantors"), pursuant to which Grantors granted to Trustees liens on and security interests in the Trustee Collateral (as hereinafter defined), none of which Trustee Collateral constitutes or includes Bank Collateral, to secure the Placement Debt (as hereinafter defined). D. The Big O Parties have requested that FNBC consent to the continued existence of the Placement Debt as well as the continued existence of a security interest in the Trustee Collateral in favor of Trustees. E. FNBC has advised the Big O Parties that it is willing to give such consent, enter into the Credit Agreement, and to make available to the Big O Parties the loans and other financial accommodations provided under the Credit Agreement, subject to the terms and conditions therein contained and provided, among other things, that this Agreement be executed by and among FNBC and Trustees. F. FNBC and Trustees desire to confirm in this Agreement, as between themselves, their rights and priorities with respect to those assets and properties which are now or may hereafter be or become part of either Bank Collateral or Trustee Collateral. AGREEMENT --------- NOW, THEREFORE, in consideration of the foregoing, to induce FNBC to enter into the Credit Agreement, and for other valuable consideration, the parties hereto agree as follows: 1. Definitions. Unless the context otherwise requires, all terms used herein that are defined in the Uniform Commercial Code of the State of Illinois shall have the meanings given to them therein. In addition to the terms defined elsewhere in this Agreement, as used herein, the following terms shall have the following meanings: "Accounts" means all present and future rights of Big O or Idaho to payment for goods sold or leased or for services rendered, which are not evidenced by instruments or chattel paper, whether or not they have been earned by performance, together with all security interests or other security held by or granted to Big O or Idaho to secure such rights to payment. "Appurtenances" shall have the meaning set forth in the Indenture and Security Agreement as in effect on the date hereof. "Bank Collateral" means all Accounts, Documents, Inventory, Pledged Deposits and Other Collateral, wherever located, in which Big O or Idaho now has or hereafter acquires any right or interest, and the proceeds, insurance proceeds and products thereof, and all books and records, customer lists, credit files, computer files, programs, printouts and other computer materials and records related to any of the foregoing, but specifically excluding any proceeds of the Trustee Collateral. "Bank Debt" shall mean all of the indebtedness, liabilities and obligations of any of the Big O Parties to FNBC or any other Lender, whether now existing or hereafter arising, under the FNBC Loan Documents, and any other indebtedness, liabilities or obligations of any of the Big O Parties to FNBC, whether now existing or hereafter arising, including, without limitation, all interest accruing after the date of the filing of a petition by or against any of the Big O Parties under the U.S. Bankruptcy Code or any similar federal or state statute. "Business Day" means any day other than a Saturday, Sunday or other day on which national banks are required or permitted to close. Page 2 "Documents" means all documents of title and goods evidenced thereby, including without limitation all bills of lading, dock warrants, dock receipts, warehouse receipts and orders for the delivery of goods, and also any other document which in the regular course of business or financing is treated as adequately evidencing that the person in possession of it is entitled to receive, hold and dispose of the document and the goods it covers. "Equipment" shall mean all machinery, apparatus, equipment, goods other than inventory (and specifically excluding any "Inventory" as defined herein), systems, building materials, carpeting, furnishings, fixtures and property of similar kind and nature, now or hereafter located in or upon or affixed to any of the Sites or Improvements, or any part thereof, or used or usable in connection with any construction on or any present or future operation of the Sites or Improvements, now owned or hereafter acquired by Grantors. "Facilities" shall have the meaning set forth in the Indenture and Security Agreement as in effect on the date hereof. "FNBC Loan Documents" means the Credit Agreement, the notes delivered in connection therewith, the pledge and security agreement entered into between Big O and FNBC, the pledge and security agreement entered into between Idaho and FNBC, and such other mortgages, security agreements, pledge agreements and other documents relating to collateral for the obligations of the Big O Parties under the Credit Agreement as may be executed from time to time by Big O or any affiliate of Big O. "Facilities" shall have the meaning set forth in the Indenture and Security Agreement as in effect on the date hereof. "Improvements" shall have the meaning set forth in the Indenture and Security Agreement as in effect on the date hereof. "Inventory" means any and all goods which are held by Big O or Idaho for sale or lease or to be finished under any contract of service, wherever located, whether now owned or hereafter acquired by the Big O or Idaho, including, without limitation, all raw materials, supplies, materials used or consumed in Big O or Idaho's business, work in process, finished goods, goods in transit, and all property the sale or other disposition of which has given rise to Accounts and which has been returned to or repossessed or stopped in transit by Big O or Idaho. "Leases" shall have the meaning set forth in the Indenture and Security Agreement as in effect on the date hereof. "Lender" means each lending institution listed on the signature pages of the Credit Agreement and its successors and assigns. Page 3 "Lien" shall mean any lien, mortgage, pledge, security interest, charge or encumbrance of any kind. "Material Contracts" shall mean all contracts, instruments, licenses, permits and other agreements which either individually or in the aggregate are that are material to the conduct of the operation of any Facility, but excluding any franchise, distribution, or similar agreements of any of the Big O Parties, or any rights thereunder or proceeds from or of such franchise, distribution, or similar agreements. "Notes" shall have the meaning set forth in the Indenture and Security Agreement as in effect on the date hereof. "Other Collateral" means certain deposit accounts of Big O and BODI into which Big O or BODI, as the case may be, has agreed to deposit proceeds of Bank Collateral, all contract rights, rights to receive payments of money, choses in action, causes of action, judgments, tax refunds and tax refund claims, computer programs and software and licenses associated therewith, customer and supplier contracts and guarantee and indemnity claims, but specifically excluding from the foregoing any rights under Big O's franchise agreements with its franchisees except for Big O's right to receive payments of money thereunder. "Placement Debt" shall mean all of the indebtedness, liabilities and obligations of Big O under the Placement Documents, whether now existing or hereafter arising, including, without limitation, all interest accruing after the date of the filing of a petition by or against any of the Big O Parties under the U.S. Bankruptcy Code or any similar federal or state statute. "Placement Documents" shall mean the Indenture and Security Agreement, the Note Purchase Agreement dated as of April 27, 1994 among Big O, USG Annuity & Life Company, and Republic Western Insurance Company, the Notes issued by Big O in connection therewith, and all other instruments and documents executed and delivered in connection with the foregoing, as amended, modified, extended, or supplemented from time to time. "Pledged Deposits" means all time deposits of money, whether or not evidenced by certificates, which Big O or Idaho may from time to time designate as pledged to FNBC or to any lender as security for any obligation to such parties, and all rights to receive interest on said deposits. "Proceeds" shall have the meaning set forth in the Indenture and Security Agreement as in effect on the date hereof. "Rents" shall have the meaning set forth in the Indenture and Security Agreement as in effect on the date hereof. Page 4 "Sites" shall have the meaning set forth in the Indenture and Security Agreement as in effect on the date hereof. "Trustee Collateral" shall mean the Sites, Improvements, Appurtenances, Leases, Rents, Equipment, Material Contracts, and any proceeds of the foregoing. 2. Consents. 2.1 Trustees hereby acknowledge and consent to each Big O Party's execution and delivery of the FNBC Loan Documents to which it is a party and the performance by each Big O Party of its obligations thereunder, notwithstanding any term, covenant or condition of the Placement Documents to the contrary. 2.2 FNBC hereby acknowledges and consents to each Grantor's execution and delivery of the Placement Documents to which it is a party and the performance by each Grantor of its obligations thereunder, notwithstanding any term, covenant or condition of the FNBC Loan Documents to the contrary. 3. Acknowledgments and Confirmations. 3.1 Trustees hereby acknowledge the validity of FNBC's Liens on the Bank Collateral, confirm that the Trustee Collateral does not and shall not include any Bank Collateral, and confirm that Trustees shall not have any interest or assert any claim against the Bank Collateral, or any proceeds thereof, for any reason. 3.2 FNBC hereby acknowledges the validity of Trustees' Liens on the Trustee Collateral, confirms that the Bank Collateral shall not include any Trustee Collateral, and FNBC shall not have any interest in or assert any claim against the Trustee Collateral, or any proceeds thereof, for any reason. 4. Access to Bank Collateral. 4.1 In the event Trustees acquire ownership or possession of any of the Facilities pursuant to the exercise of their rights under the Indenture and Security Agreement, or any other documents executed by Grantors or under applicable law, Trustees, while not to be deemed bailees of FNBC, agree to cooperate with FNBC in the assembly, storage, and preservation of any Bank Collateral located on the Sites, for a period of time (the "Disposition Period") of up to 45 days from the date FNBC receives a notice from Trustees that Trustees have acquired such an ownership or possessory interest in such Facility. 4.2 Trustees acknowledge and agree that with respect to their interests in the Facilities prior to any acquisition by them of an ownership or possessory interest as described in Section 4. 1, Trustees have no objection and consent to FNBC's entry into the Facilities for Page 5 the purposes of enforcing or preserving its security interest in the Bank Collateral located thereon. 5. Continued Effectiveness of this Agreement. None of the terms of this Agreement, or the rights or obligations of FNBC or Trustees arising hereunder, shall be affected, modified, or impaired in any manner or to any extent by: (i) any amendment or modification of or supplement to any of the FNBC Loan Documents or any of the Placement Documents; (ii) the validity or enforceability of any of such documents; and (iii) any exercise or non-exercise of any right, power, or remedy under or in respect of the Bank Debt or Placement Debt or any of such instruments or documents referred to in clause (i) above or in respect of any of the properties or assets now or hereafter constituting Bank Collateral or Trustee Collateral, whether or not Trustees or FNBC shall have had notice or knowledge of any of the foregoing and whether or not it shall have consented thereto. 6. Miscellaneous. 6.1 The provisions of this Agreement are solely for the purpose of defining the relative rights of FNBC and any other Lenders on the one hand and Trustees on the other hand, and nothing herein shall impair as between Trustees and any of the Big 0 Parties, or FNBC and any of the Big 0 Parties, such party's obligations to pay FNBC and Trustees the principal, interest, and other charges due under the FNBC Loan Documents or the Placement Documents as and when the same shall become due in accordance with their respective terms; nor shall anything herein prevent FNBC or Trustees from exercising all rights and remedies otherwise permitted by applicable law upon default, subject, however, to the rights of FNBC and Trustees under the provisions of this Agreement 6.2 Except as otherwise provided herein, all notices, requests and demands to or upon a party hereto shall be in writing and shall be sent by certified or registered mail, return receipt requested, by overnight delivery service providing evidence of receipt, by personal delivery against receipt, or by facsimile transmission with receipt confirmed, and, unless otherwise expressly provided herein, shall be deemed to have been validly served, given or delivered when delivered against receipt, or, in the case of certified or registered mail, three (3) Business Days after deposit in the U.S. mail, postage prepaid, or, in the base OF overnight delivery service, one (1) Business Day after deposit with the overnight carrier, or, in the case of facsimile transmission, when sent with receipt confirmed, addressed as follows: (i) If to FNBC: The First National Bank of Chicago One First National Plaza Suite 0088 Chicago, Illinois 60670 Attention: Nathan L. Bloch Facsimile: (312) 732-5161 Page 6 (ii) If to Trustees: Bank of Cherry Creek, N.A. 3033 East First Avenue Denver, Colorado 80206 Attention: Corporate Trust Department Facsimile: (303) 329-9629 or to such other address or facsimile transmission number as each party may designate for itself by like notice given in accordance herewith. Any written notice that is not sent in conformity with the provisions hereof shall nevertheless be effective on the date that such notice is actually received by the noticed party. Failure or delay in delivering copies of any notice, request or demand to the Persons designated above to receive copies shall in no way adversely affect the effectiveness of such notice, request or demand. 6.3 This Agreement shall remain in effect so long as any portion of the FNBC Debt or the Placement Debt remains outstanding; provided, however, that no termination shall impair any rights, priorities or obligations created or acquired hereunder by FNBC or Trustees. 6.4 FNBC and Trustees acknowledge that each executes this Agreement based solely on its or their independent knowledge of the financial condition of the Big O Parties. 6.5 This Agreement may not be amended or modified orally but may be amended or modified only in writing, signed by all parties hereto. No waiver of any term or provision of this Agreement shall be effective unless it is in writing, making specific reference to this Agreement and signed by the party against whom such waiver is sought to be enforced. This Agreement constitutes the entire agreement among the parties hereto with respect to the subject matter hereof. 6.6 This Agreement shall be binding upon and inure to the benefit of Trustees and FNBC and their respective successors and assigns. 6.7 This Agreement may be signed in one or more counterparts each of which shall be deemed to be an original and all of which when taken together shall constitute but one and the same instrument. 6.8 THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS. EACH OF THE PARTIES HERETO HEREBY CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF THE STATE OR FEDERAL COURTS LOCATED IN CHICAGO, ILLINOIS WITH RESPECT TO ANY MATTERS ARISING OUT OF OR RELATED TO THIS AGREEMENT. EACH OF THE PARTIES HERETO WAIVES ANY OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION INSTITUTED AGAINST IT AS PROVIDED HEREIN AND AGREES NOT TO ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE. Page 7 6.9 EACH OF THE PARTIES HERETO HEREBY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO TRIAL THIS AGREEMENT OR ANY OTHER DOCUMENTS, OBLIGATIONS, OR COLLATERAL RELATED THERETO OR AFFECTED THEREBY. IN WITNESS WHEREOF, the parties hereto have executed this Consent, Acknowledgment and Access Agreement as of the date first above written. THE BANK OF CHERRY CREEK, N.A., a national banking association, as Trustee By: ___________________________________ Title: ________________________________ _______________________________________ Kenneth B. Buckius, as Trustee THE FIRST NATIONAL BANK OF CHICAGO, a national banking association, individually and as agent By: ___________________________________ Title: ________________________________ Page 8 ACKNOWLEDGMENT AND AGREEMENT ---------------------------- Each of the undersigned hereby acknowledges and agrees to all of the terms and conditions of the foregoing Consent, Acknowledgment and Access Agreement. The Big O Parties under the Credit Agreement dated as of January 23, 1995 with The First National Bank of Chicago, individually and as agent: BIG O TIRES, INC. By: _________________________________ Title: ______________________________ BIG O DEVELOPMENT, INC. By: _________________________________ Title: ______________________________ BIG O TIRE OF IDAHO, INC. By: _________________________________ Title: ______________________________ Page 9 ACKNOWLEDGMENT AND AGREEMENT ---------------------------- Each of the undersigned hereby acknowledges and agrees to all of the terms and conditions of the foregoing Consent, Acknowledgment and Access Agreement. The Purchasers under the Note Purchase Agreement with Big O Tires, Inc., dated as of April 27, 1994: USG ANNUITY & LIFE COMPANY By Equitable Investment Services, Inc., Agent By: /s/ Robert H. Kunnen, Managing Director REPUBLIC WESTERN INSURANCE COMPANY By: _________________________________ Title: ______________________________ Page 10 EX-10.79 20 NOTE OF PURCHASE AGREEMENT Exhibit 10.79 -------------------------------------------------------------------------- ----------------------------- BIG O TIRES, INC. ----------------------------- NOTE PURCHASE AGREEMENT Dated as of April 27, 1994 ----------------------------- 8.71% Senior Secured Notes Due 2004 -------------------------------------------------------------------------- TABLE OF CONTENTS Section 1. ISSUANCE OF NOTES........................................ 1 A. The Notes; Security......................................... 1 B. Purchase and Sale of Notes; the Closing..................... 1 Section 2. REPRESENTATIONS AND WARRANTIES........................... 2 A. Organization, Qualification, Authority and Binding Effect........................................... 2 B. Business, Properties and Other Information Regarding the Company.................................... 2 C. Incorporation, Good Standing and Ownership of Subsidiaries.......................................... 4 D. Financial Statements........................................ 4 E. Compliance with Laws, Other Instruments, etc................ 5 F. Litigation; Observance of Statutes, Regulations and Orders............................................... 6 G. Taxes....................................................... 6 H. Titles to Properties........................................ 7 I. Licenses, Permits, Etc...................................... 7 J. Compliance with ERISA....................................... 7 K. Governmental Authorization with Respect to the Company............................................. 8 L. Offering of the Notes....................................... 8 M. Use of Proceeds; Margin Regulations......................... 9 N. Investment Company Act and Holding Company Status........... 9 O. Place of Business........................................... 9 P. No Defaults Under Existing Debt............................. 9 Q. Environmental Matters....................................... 10 R. Validity of Lien............................................ 13 Section 3. REPRESENTATIONS OF THE PURCHASERS........................ 13 A. Purchase of Notes........................................... 13 B. Source of Funds............................................. 13 Section 4. CONDITIONS............................................... 14 A. Documents................................................... 14 B. Representations True, Etc.; Officer's Certificate........... 15 C. Proceedings................................................. 15 D. Title Insurance, Etc........................................ 15 E. Insurance on Mortgaged Property............................. 16 F. Opinion of Counsel for the Company.......................... 16 G. Opinions of Special Counsel................................. 16 H. Environmental Compliance.................................... 17 I. Legality.................................................... 17 J. Private Placement Number.................................... 17 L. All Purchases of Notes Made................................. 17 Section 5. INSPECTION OF PROPERTIES AND BOOKS; ETC.................. 17 Section 6. FINANCIAL STATEMENTS AND INFORMATION..................... 18 Section 7. HOME OFFICE PAYMENT...................................... 19 Section 8. LIABILITIES OF THE PURCHASERS............................ 20 Section 9. MISCELLANEOUS............................................ 20 A. Expenses.................................................... 20 B. Taxes....................................................... 21 C. Indemnification............................................. 21 D. Reliance on and Survival of Representations................. 22 E. Successors and Assigns...................................... 22 F. Communications.............................................. 22 G. Governing Law............................................... 23 H. Severability................................................ 23 I. Headings.................................................... 23 J. Counterparts................................................ 23 SCHEDULE I - Names and Addresses of the Purchasers EXHIBIT 2(C) - Subsidiaries EXHIBIT A - Form of Indenture EXHIBIT B - Form of Subsidiary Guaranty EXHIBIT C - Form of Opinion of Counsel to the Company EXHIBIT D - Form of Opinion of Special Nevada, California, and Idaho Counsel NOTE PURCHASE AGREEMENT THIS NOTE PURCHASE AGREEMENT ("Agreement") dated as of April 27, 1994 between Big O Tires, Inc., a Nevada corporation (the "Company"), and the Purchasers whose names appear in the signature forms at the foot hereof (individually a "Purchaser" and collectively the "Purchasers"). Big O Development, Inc., a Colorado corporation ("BOD") and Big O Tire of Idaho, Inc., an Idaho corporation ("Big O Idaho"), wholly owned subsidiaries of the Company, are also parties hereto for the purposes set forth herein. BOD and Big O Idaho are referred to herein together as the "Guarantors". W I T N E S S E T H : Section 1. ISSUANCE OF NOTES. A. The Notes; Security. The Company has duly authorized an issue of its -------------------- 8.71% Senior Secured Notes due 2004 in an aggregate principal amount of $8,000,000 (the "Notes"), which Notes shall be issued under and secured by an Indenture, Mortgage, Deed of Trust, Security Agreement, and Financing Statement (Fixture Filing) dated as of this same date substantially in the form of Exhibit A hereto (the "Indenture"), made by the Company and certain of its Subsidiaries to The Bank of Cherry Creek, N.A., as Indenture Trustee (the "Indenture Trustee"), and Douglas R. Dix, as individual trustee (the "Individual Trustee" and, together with the Indenture Trustee, the "Trustees"). Terms defined in the Indenture are used herein as so defined except as otherwise defined herein. The Notes will mature, will bear interest and will be payable as provided in the Indenture. The Notes will be secured in accordance with the Indenture, which will create a first mortgage or deed of trust lien upon real estate and improvements thereon owned and operated by the Company or by a subsidiary of the Company and more fully described in Schedules A-1 to A-3 to the Indenture (the "Operating Properties"), and a security interest in the equipment accounts and other Mortgaged Property referred to and described in the Indenture. B. Purchase and Sale of Notes; the Closing. Subject to the terms and ---------------------------------------- conditions of this Agreement and on the basis of the representations and warranties herein set forth herein and in the Indenture, the Company agrees to sell to each purchaser, and each Purchaser hereby severally agrees to purchase from the Company on the Closing Date referred to below, Notes in the aggregate principal amount set forth opposite the name of such Purchaser in Schedule I, at a purchase price of 100% of the principal amount thereof. Delivery of and payment for the Notes to be purchased hereunder shall take place on April 29, 1994, or such other date as may be mutually satisfactory to the Company and the purchaser (the "Closing Date"). On the Closing Date, the Company will deliver to each Purchaser one or more Notes registered in the name of such Purchaser or in the name of such Purchaser's nominee, in any denominations (integral multiples of $500,000) and in the aggregate principal amount to be purchased by such Purchaser, all as such Purchaser may specify by timely notice to the Company (or, in the absence of such notice, one Note registered in the name of such Purchaser), duly executed and dated the Closing Date, against payment therefor, by wire transfer of immediately available funds, in the amount of the purchase to be made by such Purchaser as specified in Schedule I, to the Trustees under the Indenture for deposit, maintenance and distribution in accordance with the Escrow established under Section 5.4 of the Indenture. Receipt thereof by the Trustees shall constitute receipt by the Company hereunder. Section 2. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to the Purchasers as follows: A. Organization, Qualification, Authority and Binding Effect. The ---------------------------------------------------------- Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada and has all requisite power and authority to own or hold under lease the property it purports to own or hold under lease and to carry on its business as now conducted and as proposed to be conducted and to enter into the transactions contemplated hereby, to execute and deliver this Agreement, the Indenture and the Notes and to observe and perform the provisions hereof and thereof. The Company is duly qualified as a foreign corporation and authorized to do business in the States of California, Idaho, Colorado, and in each other jurisdiction in which the character of the properties owned or held under lease by it or the nature of the business transacted by it requires such qualification, except where the failure to be so qualified in such other jurisdictions would not individually or in the aggregate materially affect adversely the financial condition, business, properties or prospects of the Company or the Company and its Subsidiaries taken as a whole. This Agreement, the Indenture and the Notes have been duly authorized by all n necessary corporate action on the part of the Company and constitute (or upon delivery on or before the Closing Date as contemplated by this Agreement will constitute) legal, valid and binding obligations of the Company enforceable against the Company in accordance with their respective terms. B. Business, Properties and Other Information Regarding the Company. The ----------------------------------------------------------------- Company is subject to the reporting requirements of Section 13 of the Securities -2- Exchange Act of 1934, as amended, and has delivered to each Purchaser copies of: (i) its Annual Report on Form 10-K for its fiscal year ended December 31, 1993, filed pursuant to Section 13(a) of said Act; (ii) a draft of its Quarterly Report on Form 10-Q for its fiscal quarter ended March 31, 1994, to be filed pursuant to Section 13 (a) of said Act; and (iii) the Proxy Statement for its 1993 Annual Meeting of Shareholders, filed pursuant to Section 14 of said Act. Said reports and proxy statement include all regular and periodic reports and proxy statements required to be filed by the Company with the Commission since January 1, 1993, pursuant to the Act, and are collectively called the "SEC Reports", which term shall also include on the Closing Date all further reports and proxy statements which the Company may theretofore have furnished to the Purchasers pursuant to Section 6 of this Agreement. As of their respective dates neither the SEC Reports, nor this Agreement, the Indenture, or any other document, certificate or written statement furnished to any Purchaser by or on behalf of the Company or any Subsidiary in connection herewith contained, nor did any statement made by officers of the Company or other representatives of the Company in connection with such transactions contain, any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements contained herein and therein not misleading. Since the date of the Annual Report there has been no material change in the financial condition, business, properties or prospects of the Company or the Company and its Subsidiaries taken as a whole. The Company knows of no fact (other than matters of a general economic nature or matters generally affecting the businesses engaged in by the Company and its Subsidiaries) not disclosed either in the SEC Reports listed above or otherwise to Purchasers in writing that materially affects adversely or, so far as the Company can now foresee, will materially affect adversely the financial condition, business, properties or prospects of the Company or the Company and its Subsidiaries taken as a whole or the ability of the Company to perform its obligations under this Agreement, the Indenture and the Notes, or the ability of either of the Guarantors to perform its obligations under the Subsidiary Guaranty. -3- C. Incorporation, Good Standing and Ownership of Subsidiaries. Exhibit ----------------------------------------------------------- 2(C) is a complete and correct list of each of the Company's Subsidiaries, showing as to each Subsidiary, the correct name thereof, the jurisdiction of its organization, the percentage of shares of each class of securities of such Subsidiary owned by the Company and each other Subsidiary and whether such Subsidiary is a Material Subsidiary. All of the outstanding shares of each of the Subsidiaries shown in Exhibit 2 (C) as being owned by the Company and its Subsidiaries have been validly issued, are fully paid and nonassessable and are owned by the Company or another Subsidiary free and clear of any Lien. No Subsidiary owns any shares of the Company. Each Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and is duly qualified as a foreign corporation and is in good standing in each jurisdiction in which the character of the properties owned or held under lease by it or the nature of the business transacted by it requires such qualification, except where the failure to be so qualified individually and in the aggregate would not materially affect adversely the financial condition, business, properties or prospects of the Company or the Company and its Subsidiaries taken as a whole. Each Subsidiary has all requisite power and authority to own or hold under lease the property its purports to own or hold under lease and to transact the business it transacts and proposes to transact and to execute, deliver and perform any obligations undertaken hereunder or under the documents and instruments referred to herein. The Indenture and the Subsidiary Guaranty have been duly authorized by all necessary corporate action of the Guarantor, and the Indenture and the Subsidiary Guaranty constitute the valid obligations of the Guarantors, enforceable in accordance with their terms. D. Financial Statements. The Company has delivered to each Purchaser -------------------- copies of: (i) the consolidated balance sheets of the Company and its Subsidiaries as at December 31, 1993 and 1992 and the related consolidated statements of income, stockholders, equity and cash flows of the Company and its Subsidiaries for each of the fiscal years ended December 31, 1993 and 1992, all with reports thereon of -4- the Company's independent public accountants; and (ii) the consolidated balance sheet of the Company and its Subsidiaries as at March 31, 1994 and the related consolidated statements of income, stockholders, equity and cash flows of the Company and its Subsidiaries for the three months then ended, all certified by the Treasurer of the Company subject to year-end and audit adjustments. All such financial statements (including any related schedules or notes) present fairly the financial position of the Company and its Subsidiaries as at the respective dates of such consolidated balance sheets and the results of their operations for the fiscal periods ended on said dates, all in accordance with GAAP. Since the end of the most recent fiscal year as to which financial statements have been provided to Purchasers, there have been no changes in the assets, liabilities or financial position of the Company and its Subsidiaries from that set forth in said consolidated balance sheet as of said date, other than changes in the ordinary course of business which have not, either individually or in the aggregate, been materially adverse. E. Compliance with Laws, Other Instruments, Etc. The execution, delivery --------------------------------------------- and performance by the Company of this Agreement, the Indenture or the Notes, and by the Guarantors of the Subsidiary Guaranty and the Indenture, will not (i) contravene, result in any material breach of, or constitute a material default under, or result in the creation of any Lien in respect of any property of the Company or any Subsidiary under, any indenture, mortgage, deed of trust, bank loan or credit agreement, corporate charter or by-law, or any other agreement or instrument to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary or any of their respective properties may be bound or affected, (ii) conflict with or result in a breach of any of the terms, conditions or provisions of any Order of any court, arbitrator or Governmental Body known to the Company to be applicable to the Company or any Subsidiary or (iii) violate any provision of any statute or any rule or regulation of any Governmental Body applicable to the Company or any Subsidiary. As used in this Agreement, the term "Governmental Body, includes any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign; and the -5- term "Order, includes any order, writ, injunction, decree, judgment, award, determination, direction or demand. F. Litigation; Observance of Statutes, Regulations and Orders. There ----------------------------------------------------------- are no actions, suits or proceedings (including counterclaims) pending or, to the knowledge of the Company, threatened against or affecting the Company or any Subsidiary or any property of the Company or any Subsidiary in any court or before any arbitrator of any kind or before or by any Governmental Body (except actions, suits or proceedings arising in the ordinary course of business and which (i) individually, except for a counterclaim in Big 0 Tires, Inc. vs. Fresh Tire, Incorporated (Los Angeles) and Thurman v. Big 0 Tires, Inc. (Colorado; Civil Rights Agency), do not represent a potential uninsurable claim in excess of $25,000 or (ii) in the aggregate, if adversely determined, would not have a material adverse effect on the financial condition, business, properties or prospects of the Company or the Company and its Subsidiaries taken as a whole). Neither the Company nor any Subsidiary is in default under any Order of any court, arbitrator or Governmental Body known to the Company or is in violation of any statute or other rule or regulation of any Governmental Body, which default or violation might materially and adversely affect the financial condition, business or properties of the Company or the Company and its Subsidiaries taken as a whole or the ability of the Company to perform its obligations under this Agreement, the Indenture and the Notes. G. Taxes. The Company and each Subsidiary have filed all tax returns in ------ all jurisdictions in which such returns are required to have been filed by them and have paid all taxes shown to be due and payable on such returns and all other taxes and assessments payable by them, in each case to the extent the same have become due and payable and before they have become delinquent (provided the tax returns for year-end December 31, 1993, are under extension and are to be filed not later than October 17, 1994), except for any taxes and assessments the amount, applicability or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which the Company or such Subsidiary, as the case may be, has made provision in respect of such liability in accordance with GAAP. Neither the Company nor any Subsidiary knows of any proposed material tax assessment against the Company or any Subsidiary, and in the opinion of the Company all tax liabilities are adequately provided for on the books -6- of the Company and its Subsidiaries. The federal income tax liabilities of the Company have been determined by the Internal Revenue Service and paid for all tax years up to and including the tax year ended December 31, 1990. H. Title to Properties. Each of the Company and its Subsidiaries has -------------------- good and marketable fee title to its respective real properties and good title to its other properties and good title to its other properties reflect in the consolidated balance sheet as at December 31, 1993 described in Section 2(D)(i) above or purported to have been acquired by the Company and any Subsidiary after said date (other than properties and assets disposed of in the ordinary course of business), subject to no Lien of any kind that would be prohibited by the Indenture. I. Licenses, Permits, Etc. The Company and its Subsidiaries own or ----------------------- possess all licenses, permits, franchises and authorizations of, and filings with, Governmental Bodies and other Persons necessary or material to the ownership, operation and maintenance of the Facilities (collectively the "Operating Permits"), and all other licenses, permits, franchises, authorizations, patents, copyrights, trademarks and trade names, or rights thereto, material to the conduct of their respective businesses as now conducted and as currently proposed to be conducted, in each case without known conflict with the rights of others, and there are no agreements providing for the expiration or termination of any of the same prior to the final maturity of the Notes; provided, however, the Company's franchise agreements with its franchises are limited in duration to ten years and such franchise agreements will expire before the maturity of the Notes. J. Compliance with ERISA. Neither the Company nor any Code Affiliate has ---------------------- incurred (1) any material ,accumulated funding deficiency" or "waived funding deficiency" within the meaning of Section 412 of the Code or Sections 302 and 303(c) of ERISA, or (2) any material liability to the Pension Benefit Guaranty Corporation established under ERISA in connection with any employee benefit plan established or maintained by it; nor has the Company or any Code Affiliate had any tax assessed against it by the United States Internal Revenue Service for any alleged violation under Section 406 of ERISA or 4975 of the Code. The current value of the benefit liabilities (as defined in Section 4001 (a) (16) of ERISA) of each Plan other than a Multiemployer Plan does not exceed the fair market value of the assets of such Plan as of the most recently ended plan year of each such Plan. Neither the Company nor an ERISA Affiliate has -7- made a complete or partial withdrawal from a Multiemployer Plan which has resulted in a present or potential unsatisfied withdrawal liability obligation to such Plan which is not reflected in the Company's most recent financial statements. Neither the Company nor any of its Subsidiaries provides medical benefits to retirees other than as required by the Comprehensive Omnibus Budget Reconciliation Act of 1985, as amended. The transactions contemplated by this Agreement will not involve a prohibited transaction (as such term is defined in Section 4975 of the Code or Section 406 of ERISA) that could subject the Company or any holder of a Note to any tax or penalty on prohibited transactions imposed under said Section 4975 of the Code or by Section 502(i) of ERISA. The representation by the Company in the preceding sentence is made in reliance upon the representations of the Purchasers in Section 3. As used in this Agreement, the term "Code" means the Internal Revenue code of 1986, as amended from time to time; the term "Code Affiliate,, means each trade or business (whether or not incorporated) which together with the Company is treated as a "single employer" under subsection (b), (c), (m) or (o) of Section 414 of the Code; the term "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time; the term "ERISA Affiliate,, means each trade or business (whether or not incorporated) which together with the Company would be deemed to a "single employer" within the meaning of Section 4001 of ERISA; the term "Multiemployer Plan" means "multiemployer plan" (as such term is defined in section 3(37) of ERISA and section 414(f) of the Code) to which contributions are or have been made by the Company or any of its Subsidiaries; and the term "Plan" means any employee pension benefit plan maintained or contributed to by the Company or an ERISA Affiliate. K. Governmental Authorization with Respect to the Company. No consent, ------------------------------------------------------- approval or authorization of, or registration, filing or declaration with, any Governmental.mental Body is required for the validity of the execution and delivery or for the performance by the Company of this Agreement, the Indenture or the Notes. L. Offering of the Notes. Neither the Company nor anyone acting on its ---------------------- behalf has offered the Notes or any similar securities for sale to, or solicited any offer to buy any of the same from, or otherwise approached or negotiated in respect thereof with, any Person other than the Purchasers and not more than seventy other institutional investors. Neither the -8- Company nor anyone acting on its behalf has taken, or will take, any action which would subject the issuance or sale of the Notes to Section 5 of the Securities Act of 1933, as amended. M. Use of Proceeds: Margin Regulations. The proceeds from the sale of ------------------------------------ the Notes will be used by the Company (i) to finance a portion of the costs associated with the consolidation of the Company's distribution operations, (ii) to retire outstanding indebtedness, and (iii) for general operations expenses. No part of the proceeds from the sale of the Notes hereunder will be used, directly or indirectly, for the purpose of buying or carrying any margin stock within the meaning of Regulation G of the Board of Governors of the United States Federal Reserve System (12 CFR 207), or for the purpose of buying or carrying on or trading in any securities under such circumstances as to involve the Company in a violation of Regulation X of said Board (12 CFT 224) or to involve any broker or dealer in a violation of Regulation T of said Board (12 CFR 220). The assets of the Company do not include any margin stock, and the Company will not acquire any margin stock. As used in this Section, the terms "margin stock" and "purpose of buying or carrying" Shall have the meanings assigned to them in the aforesaid Regulation G. N. Investment Company Act and Holding Company Status. Neither the ------------------------------------------------ Company nor any of its Subsidiaries is a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", or a "public utility", within the meaning of the Public Utility Holding Company Act of 1935, as amended, or a "public utility" within the meaning of the Federal Power Act, as amended. Neither the Company nor any of its Subsidiaries is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or an "investment adviser" within the meaning of the Investment Advisers Act of 1940, as amended. O. Place of Business. The chief executive office (as such term is used ------------------ in Article 9 of the Uniform Commercial Code) of the Company and the office where it keeps records of all contracts is located at 11755 East Peakview Avenue, Englewood, Colorado 80111. Such office for each of the respective Subsidiaries is set forth on Schedule 2C attached hereto. P. No Defaults Under Existing Debt. Neither the Company nor any -------------------------------- Subsidiary is in default (whether or not -9- waived) in the performance or observance of any of the terms, covenants or conditions contained in any instrument evidencing any Debt and no event has occurred and is continuing which, with notice or the lapse of time or both, would become such a default. Q. Environmental Matters. (i) The Company and its Subsidiaries have ---------------------- obtained all environmental, health and safety permits, licenses and other authorizations required under all Environmental Laws necessary for the operation of their respective businesses. Each such permit, license and authorization is in good standing and the Company and its Subsidiaries are in substantial compliance with the respective terms and conditions thereof. The Company and any property owned or leased by the Company or any of its Subsidiaries is in substantial compliance with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in any applicable Environmental Law or in any regulation, code, plan, Order or demand letter issued, entered, promulgated or approved thereunder. (ii) In addition to the foregoing: (1) no notice, notification, demand, request for information, citation, summons or order has been issued to, no complaint has been served on, and no penalty has been assessed against the Company or any property owned or leased by the Company or any of its Subsidiaries and no investigation or review is pending or, to the knowledge of the Company, threatened by any Governmental Body or other entity, with respect to any alleged failure by the Company or any property owned or leased by the Company or any of its Subsidiaries, to have any environmental, health or safety permit, license or other authorization required under any Environmental Law or with respect to any generation, treatment, storage, recycling, transportation, discharge or disposal, or any Release of any Hazardous Materials or with respect to any violation or alleged violation of any Environmental Law; provided that with respect to property other than the property covered by the Indenture, such notice, service or assessment may have been effected but in such event even if determined adversely to the Company or a Subsidiary there would be no material adverse effect as a result thereof -10- upon the financial condition of the Company or any Subsidiary; (2) the Company is not a treatment, storage or disposal facility requiring a permit under the United States Resource Conservation and Recovery Act, 42 U.S.C. Section 6291 et seq., as amended, or under any comparable state or local statute; and (a) no polychlorinated biphenyls (PCB) are present at any property owned or leased by the Company or any of its Subsidiaries; (b) no asbestos or asbestos-containing material is present at any property owned or leased by the Company or any of its Subsidiaries; (c) there are no underground storage tanks or surface impoundments for Hazardous Materials, active or abandoned, at any property owned or leased by the Company or any of its Subsidiaries; and (d) no Hazardous Materials have been Released at, on or under any property owned or leased by the Company or any of its Subsidiaries, except for Releases in the ordinary course of the Company's business which, either individually or when aggregated with other such Releases, could not have a material adverse effect on the financial condition, business, properties or prospects of the Company or the Company and its Subsidiaries taken as a whole. (3) the Company has not transported or arranged for the transportation of any Hazardous Material to any location that is listed on the National Priorities List under the United States Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), or on any similar state or local list or that is the subject of -11- Federal, state or local enforcement actions or other investigations that may lead to Environmental,mental Claims against the Company; the Company has informed the Purchasers, however, that in the early 1980's the Company transported tire casings to the Lowry Landfill, Denver, Colorado, the subject of an EPA cleanup order and a "Superfund" site, which tire casings the Company represents are not Hazardous Materials; (4) no Liens have been filed under or pursuant to any Environmental Laws on any property owned or leased by the Company or any of its Subsidiaries and no government actions have been taken or are pending that could subject any property owned or leased by the Company or any of its Subsidiaries to such Liens and the Company would not be required to place any notice or restriction relating to the presence of Hazardous Materials at any property owned or leased by the Company or any of its Subsidiaries in any deed to any property owned or leased by the Company or any of its Subsidiaries; (5) neither any property owned or leased by the Company or any of its Subsidiaries nor any portion thereof, is being used or has been used for the treatment, generation, transportation, processing, handling, production or for disposal of any Hazardous Materials or as a landfill or other waste disposal Bite other than in the normal and lawful course of the operation of any property owned or leased by the Company or any of its Subsidiaries; neither any property owned or leased by the Company or any of its Subsidiaries nor any portion thereof has been subject to investigation by any Governmental Body evaluating the need to investigate or undertake remedial action at any property owned or leased by the Company or any of its Subsidiaries; and neither any property owned or leased by the Company or any of its Subsidiaries nor any portion thereof is identified on the current or proposed National Priorities List under 40 CFR 300 Appendix B, Comprehensive Environmental Response Compensation and Liability Inventory System list, or any list arising from any statute analogous to CERCLA; and -12- (6) there are no ongoing negotiations with or agreement with any Governmental Body relating to any remedial action or other Environmental Claim with respect to any property owned or leased by the Company or any of its Subsidiaries; and neither the Company nor any of its Subsidiaries has submitted notice pursuant to Section 103 of CERCLA or analogous statute or notice under any other applicable Environmental Law reporting a release of a Hazardous Material into the environment. R. Validity of Lien. As of the Closing Date (a) the Lien of and under the ----------------- Indenture will constitute a valid first mortgage lien on and first priority perfected security interest in the Mortgaged Property then existing, (b) all documents and instruments will have been recorded and filed for record in such manner and in such places as are required to establish and perfect such lien and security interest under the Indenture intended to be created thereby and thereunder, (c) no further action will be required to establish (other than the filing of continuation statements), maintain and preserve such lien and security interest and (d) all taxes and filing fees in connection with the execution, delivery or recordation of the Indenture and all other appropriate documents and instruments will have been paid. Section 3. REPRESENTATIONS OF THE PURCHASERS. Each Purchaser severally represents to the Company as follows: A. Purchase of Notes. Such Purchaser is purchasing the Notes to be ------------------ purchased by it on the Closing Date for investment and not with a view to the distribution thereof, provided, however, that the disposition of such Purchaser's property shall at all times be within its control. B. Source of Funds. Either: ---------------- (i) no part of the funds used by such Purchaser to purchase Notes hereunder will be from the assets of any separate account maintained by such Purchaser in which any employee benefit plan (or its related trust) has an interest; or -13- (ii) if any part of such purchase will be from the assets of any separate account maintained by such Purchaser in which any employee benefit plan has an interest, (1) on or prior to the Closing Date such Purchaser shall have disclosed to the Company the name of each employee benefit plan the assets of which are in such separate account, or (2) such separate account is a "pooled separate account" entitled to the exemption granted by the Prohibited Transaction Class Exemption 90-1 issued by the Department of Labor, and on or prior to the Closing Date such Purchaser shall have disclosed to the Company the name of each employee benefit plan whose assets in such separate account exceed or are expected to exceed 10% of the total assets of such account as of the Closing Date. For purposes of clause (2) above all employee benefit plan maintained by the Same employer or employee organization are deemed to be a single employee benefit plan. As used in this Section 3, the terms "separate account" and "employee benefit plan" Shall have the respective meanings assigned to them in ERISA. Section 4. CONDITIONS. The obligation of each Purchaser to purchase and pay for the Notes to be purchased by it hereunder shall be subject to the satisfaction, on or before the Closing Date, of the following conditions: A. Documents. The following documents shall have been duly executed and ---------- delivered and shall be in full force and effect: 1. the Indenture, substantially in the form as provided above; 2. a Subsidiary Guaranty, substantially in the form of Exhibit B attached hereto (the "Subsidiary Guaranty") by Big O Development, Inc. and by Big O Tire of Idaho, Inc.; -14- 3. an Intercreditor Agreement between the Trustees and Barclays Business Credit, Inc.; and 4. such other mortgage, security agreements, financing statements and other documents contemplated hereby or by the preceding documents. B. Representations True, Etc.; Officer's Certificate. All -------------------------------------------------- representations and warranties of the Company contained in Section 2 and elsewhere contained in this Agreement or the Indenture shall (except as affected by the transactions contemplated by this Agreement) be true on and as of the Closing Date with the same effect as though said representations and warranties had been made on and as of the Closing Date, except to the extent that Such representations and warranties relate solely to an earlier date (in which case such representations and warranties Shall be true as of such earlier date); no Default or Event of Default shall exist on the Closing Date; the Company shall not have consolidated with, merged into or sold, leased, transferred or otherwise disposed of its properties substantially as an entirety to, any person (whether or not the same would have been permitted by the Indenture); the Company shall have performed all agreements on its part to be performed hereunder and under the Indenture on or prior to the Closing Date; and such Purchaser shall have received a satisfactory certificate or certificates, signed by the President or the Chief Financial Officer of the Company, certifying to the effect specified in this Subsection. C. Proceedings. All other instruments relating to the issuance and sale ------------ of the Notes and all proceedings taken on and prior to the Closing Date in connection with the performance of this Agreement shall be satisfactory to such Purchaser; and such Purchaser shall have received copies of all such documents and/or other evidence as it or its special counsel may reasonably request in order to establish the consummation of such transactions and the taking of all corporate proceedings in connection therewith, in form and substance satisfactory to such Purchaser and said special counsel. D. Title Insurance, Etc. Such Purchaser shall have received policies of --------------------- title insurance as shall be satisfactory to such Purchaser, in an aggregate face amount equal to at least $8,000,000 (less, prior to the inclusion of the Las Vegas Facility under the Indenture, -15- the amount held in the Escrow established under Section 5.4 of the Indenture) and allocated among the respective Facilities in a manner satisfactory to such Purchaser, insuring the Trustees for the benefit of the Purchasers and all holders from time to time of the Notes the interest of the Trustees under the Indenture in the real estate portions of the Mortgaged Property described in the Indenture, and issued by the Title Companies, each in form and substance satisfactory to such Purchaser (including without limitation as to allocation of coverages among the Title Companies) and subject only to such exceptions as are acceptable to such Purchaser, and said title insurance policies shall affirmatively insure against such matters as such Purchaser shall reasonably request. E. Insurance on Mortgaged Property. Such Purchaser shall have received -------------------------------- evidence that the Company has obtained policies of insurance in such amounts, with such companies and against such risks as are required by the Indenture or hereunder, and in the case of earthquake and business interruption insurance an undertaking satisfactory to such Purchaser to obtain such insurance and provide satisfactory evidence thereof within 30 days after the Closing Date. At least three Business Days prior to the Closing Date such Purchaser shall have received (i) a certificate signed by a senior officer of the Company responsible for insurance matters, setting forth such insurance and stating that such insurance is in full force and effect, that all premiums then due thereon have been paid and that, in the opinion of the officer executing such certificate, such insurance complies with the provisions of the Indenture and hereunder, and (ii) written confirmation, dated reasonably near the Closing Date, as to such insurance and such compliance with the provisions of the Indenture and hereunder. F. Opinion of Counsel for the Company. Such Purchaser shall have ----------------------------------- received from Hopper & Kanouff, counsel for the Company, the opinion dated the Closing Date, substantially in the form set forth in Exhibit C hereto. Such opinion shall also cover such other matters incident to the transactions contemplated hereby as the Purchasers may reasonably request. G. Opinions of Special Counsel. Such Purchaser shall have received ---------------------------- from (i) Lionel, Sawyer & Collins, Fitzgerald, Abbott & Beardsley, and Elam & Burke, who are acting as special Nevada, California and Idaho counsel, respectively, for the Company and the Guarantors in connection with this transaction, an opinion dated the -16- Closing Date, substantially in the form set forth in Exhibit D hereto. Each such opinion shall also cover such other matters incident to the transactions contemplated hereby as the Purchasers may reasonably request. H. Environmental Compliance. Such Purchaser and the Trustees shall have ------------------------- received Such evidence as to environmental matters relating to the Mortgaged Property as the Purchasers or the Trustees may reasonably request. I. Legality. On the Closing Date the Notes to be purchased by such --------- Purchaser hereunder shall be a legal investment by such Purchaser under the laws of each jurisdiction to which it may be subject, and such Purchaser shall have received such certificates or other evidence as it may reasonably request demonstrating the legality of such purchase under such laws. J. Private Placement Number. The Notes shall have been assigned a ------------------------- Private Placement Number by Standard & Poors Corporation. K. All Purchases of Notes Made. On the Closing Date each other Purchaser ---------------------------- shall have made the purchase of Notes to be made by it as hereinabove provided. Section 5. INSPECTION OF PROPERTIES AND BOOKS; ETC. So long as any Purchaser shall be obligated to purchase, or such Purchaser or any other institutional investor shall hold, Notes, Such Purchaser or such other holder Shall have the right, upon reasonable notice to the Company and during normal business hours, to visit and inspect any of the properties of the Company or any of its Subsidiaries, to examine their books of account and records and make or be provided with copies and extracts therefrom, to discuss their affairs, finances and accounts with, and to be advised as to the same by, their officers, employees and independent public accountants (and by this provision the Company authorizes such accountants to discuss such affairs, finances and accounts, whether or not a representative of the Company is present), all at such reasonable times and to such reasonable extent as such Purchaser or such other holder may desire. The Company agrees to pay all out-of-pocket expenses incurred by each Purchaser and each such other holder in connection with such Purchaser's and such other holder's exercise of rights pursuant to this Section 5 at any time after a Default or an Event of Default has occurred. The Company will keep at its chief executive office a true copy of this Agreement and the Indenture, and cause the same to be available for inspection at said office during normal -17- business hours by any holder of a Note or any prospective purchaser of a Note designated by a holder thereof. Section 6. FINANCIAL STATEMENTS AND INFORMATION. The Company will furnish to each Purchaser, so long as such Purchaser Shall be obligated to purchase or shall hold any of the Notes, and to the Indenture Trustee and each other institutional investor holder of a Note (in duplicate): A. as soon as practicable but in any event within five (5) days after filing the same with the SEC, (i) the Company's Annual Report on Form 10-K as filed with the SEC; and (ii) a written statement of the Company's certified public accountants preparing the Annual Report above stating that in making the examination necessary for such Annual Report they obtained no knowledge of any Default or Event of Default or, if such accountants Shall have obtained any such knowledge, Specifying the same and the nature and status thereof; B. as soon as practicable but in any event within five (5) days after filing the same with the SEC, the Company's Quarterly Report on Form 10-Q and a balance sheet of the Company as of the end of such quarter; C. concurrently with the Reports and financial statements furnished pursuant to Subsection A or B above, a certificate of a senior financial officer of the Company (i) demonstrating and confirming compliance with all of the covenants contained herein and in the Indenture, and (ii) stating that, based upon such examination or investigation and review of this Agreement and the Indenture as in the opinion of the Signer is necessary to enable the signer to express an informed opinion with respect thereto, no Default or Event of Default has occurred during such period or, if any Default or Event of Default shall have occurred, specifying all such Defaults and Events of Default, and the nature and period of existence thereof, and what action the Company has taken, is taking or proposes to take with respect thereto; D. as soon as available but in no event later than five Business Days after the distribution or filing thereof, copies of all financial information that the Company makes generally available to its security holders and copies of all regular and periodic reports and of all registration statements filed by the Company or any Subsidiary with the Securities and Exchange Commission or any stock exchange; -18- E. promptly upon a Responsible Officer becoming aware of the existence of a Default or Event of Default, notice of a Responsible Officer specifying the nature and period of existence thereof and what action the Company has taken, is taking or proposes to take with respect thereto; F. promptly upon the receipt and prompt analysis thereof by the Company (and in any event within five Business Days after such receipt), copies of any notice of any Governmental Body in respect of a matter or event that, in the good faith opinion of the Company, may have a material adverse effect on the financial condition, business, properties or prospects of the Company, in each case accompanied by a written statement of a Responsible Officer specifying what action the Company has taken, is taking or proposes to take with respect thereto; G. promptly upon receipt (and in any event within five Business Days after such receipt) copies of any notice of (i) any lapse or other termination of any license, permit, franchise or other authorization issued to the Company or any Subsidiary by any Governmental Body which lapse or termination may have a material and adverse effect on the financial condition, business, properties or prospects of the Company or the Company and its Subsidiaries taken as a whole or (ii) any refusal by any Governmental Body to renew or extend any such license, permit, franchise or other authorization, which refusal may have a material and adverse effect on the financial condition, business or properties of the Company or the Company and its Subsidiaries taken as a whole, an Officer's Certificate specifying the nature of Such event, the period of existence thereof, and what action the Company is taking, has taken or proposes to take with respect thereto; and H. such other information relating to the performance of this Agreement and the Indenture and the business and affairs of the Company and its Subsidiaries as such Purchaser or other holder or the Indenture Trustee may from time to time reasonably request. Section 7. HOME OFFICE PAYMENT. Notwithstanding anything to the contrary in the Indenture or the Notes, the Company agrees that so long as any Purchaser or any nominee designated by such Purchaser shall be the holder of any Note, the Company will punctually pay or advise the Indenture Trustee punctually to pay all amounts which become due and payable on such Note by wire transfer of immediately available funds to such Purchaser in the manner and at the address set forth in Schedule I, or in such other manner or at such other address as such Purchaser may designate to -19- the Company and the Indenture Trustee in writing, without the surrender or presentation of such Note to the Indenture Trustee. Each Purchaser severally agrees that it will not sell, transfer, or otherwise dispose of any Note unless the amount of all payments of principal previously made thereon and the date to which interest thereon has been paid shall be noted thereon, or surrender the same in exchange for a Note or Notes aggregating the same principal I amount of the Note so surrendered. In furtherance of the foregoing, the Company agrees to file with the Indenture Trustee an executed counterpart or a conformed copy of this Agreement, pursuant to the Indenture. The Company shall enter into an agreement similar to that contained in this Section with any other institutional investor that is a holder of a Note (or nominee thereof) who shall have agreed to comply with the requirements of this Section. Section 8. LIABILITIES OF THE PURCHASERS. Neither this Agreement nor the Indenture or any other document relating hereto or thereto nor any disposition of any of the Notes shall be deemed to create any liability or obligation of any Purchaser or any other holder of any Note to enforce any provision hereof or thereof for the benefit or on behalf of any other person who may be the holder of any Note. Section 9. MISCELLANEOUS. A. Expenses. The Company agrees, whether or not the transactions hereby --------- contemplated shall be consummated, to pay, or cause to be paid, all of the Purchasers' reasonable expenses incident to the transactions contemplated by this Agreement and in connection with any modification, waiver, amendment, alteration or enforcement of this Agreement, the Indenture, the Notes or any other document relating hereto or thereto, or any requested modification, waiver, amendment or alteration hereof or of any thereof (whether or not the same shall become effective), including without limitation (i) the reasonable fees, charges and disbursements of counsel to the Purchasers with relation to this Agreement and the transactions contemplated hereby, the furnishing of the opinions referred to herein and any other opinions which any Purchaser may request on questions incident to such transactions, (ii) the charges and expenses in connection with the furnishing of the surveys, the title insurance, the environmental compliance report, the appraisal and the Private Placement Number pursuant to Section 4, (iii) the fees and disbursements of the Trustees and their counsel in connection with such transactions, (iv) all document preparation, recording and other expenses, fees and taxes in connection with such transactions, (v) all reasonable fees and expenses incurred in connection with any investigation of any Default or Event of Default -20- (including investment banking and financial consultant fees), and (vi) any reasonable out-of-pocket expenses of the Purchasers in connection therewith. The obligations of the Company under this Subsection shall survive the payment of the Notes. In furtherance of the foregoing, on the Closing Date the Company will pay, or cause to be paid, in accordance with this Subsection, the fees and disbursements reflected in the statements of Purchasers' counsel delivered to the Company on or prior to the Closing Date. Thereafter the Company will pay, or cause to be paid, promptly upon receipt of supplemental statements therefor from time to time, reasonable additional fees, if any, and disbursements of such counsel in connection with the transactions hereby contemplated (including disbursements unposted as of the Closing Date). B. Taxes. The Company agrees to pay, or cause to be paid, and save, or ------ cause to be saved, the Purchasers and all other holders of any of the Note's harmless against any and all liabilities with respect to amounts payable as a result Of (i) any taxes (other than income taxes) which may be determined to be payable in connection with the execution and delivery of any of the Notes, this Agreement, the Indenture or any other document or any modification, amendment or alteration of the terms or provisions of any of said agreements, instruments or documents and (ii) any interest or penalties resulting from any non-payment or delays in the payment of such expenses, charges, disbursements, liabilities, taxes or levies. The obligations of the Company under this Subsection Shall Survive the payment of the Notes. C. Indemnification. The Company agrees, to the extent permitted by ---------------- applicable law, to defend, indemnify, exonerate and hold each Purchaser and each of such Purchaser's officers, directors, employees and agents (collectively the "indemnitees" and individually an "indemnitee") free and harmless from and against any and all actions, causes of action, suits, losses, liabilities and damages, and expenses in connection therewith, including without limitation reasonable counsel fees and disbursements (collectively the "Indemnified Liabilities") incurred by the Indemnitees or any of them as a result of, or arising out of, or relating to any transaction financed or to be financed in whole or in part directly or indirectly with proceeds from the sale of any of the Notes, or the execution, delivery, performance or enforcement of this Agreement, the Indenture, or any instrument contemplated hereby by any of the Indemnitees, except as to any Indemnitee for -21- any such Indemnified Liabilities arising on account of such Indemnitee Is gross negligence or willful misconduct; and if and to the extent the foregoing undertaking may be unenforceable for any reason, the Company agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. The obligations of the Company under this Subsection shall survive the payment of the Notes. D. Reliance on and Survival of Representations. All agreements, -------------------------------------------- representations and warranties of the Company herein and in any certificates or other instruments delivered pursuant to this Agreement and the Indenture shall (i) be deemed to have been relied upon by each Purchaser, notwithstanding any investigation heretofore or hereafter made by any Purchaser or on any Purchaser's behalf, and (ii) survive the execution and delivery of this Agreement and the delivery of the Notes to the Purchasers, and shall continue in effect so long as any Note is outstanding and thereafter as provided in Subsections A, B and C above. E. Successors and Assigns. This Agreement shall bind and inure to the ----------------------- benefit of and be enforceable by the Company and its respective permitted successors and assigns hereunder, the Purchasers and the Purchasers, respective successors and assigns, and, in addition, shall inure to the benefit of and be enforceable by all holders from time to time of the Notes. F. Communications. All notices and other communications provided for in --------------- this Agreement shall be in writing and shall be sent by confirmed facsimile transmission (with hard copy sent by first class mail) or delivered by hand or sent by a reputable overnight courier service prepaid (with confirmation of receipt) (i) if to the Company, at 11755 East Peakview Avenue, Englewood, Colorado 80111 Attention: Chief Financial Officer, with a copy thereof to the Company's General Counsel (at that same address), or at such other address as the Company may hereafter designate by notice to each Purchaser and to each other holder of a Note at the time outstanding, (ii) if to any Purchaser, at Such Purchaser's address as set forth in Schedule I or at such other address as such Purchaser may hereafter designate by notice to the Company, or -22- (iii) if to any other holder of a Note, at the address of such holder as it appears on the Register. Any notice or other communication herein provided to be given to the holders of all outstanding Notes shall be deemed to have been duly given if sent as aforesaid to each of the registered holders of the Notes at the time outstanding at the address for such purpose of such holder as it appears on the Register. G. Governing Law. This agreement shall be governed by and construed in -------------- accordance with the laws of the state of Colorado. H. Severability. If any term or provision of this Agreement or any ------------- application hereof shall be invalid or unenforceable, the remainder of this Agreement and any other application of such term or provision shall not be affected thereby. I. Headings. The headings in this Agreement are for convenience of --------- reference and shall not limit or otherwise affect any of the terms hereof. J. Counterparts. This Agreement may be executed in two or more ------------- counterparts, each of which shall be deemed an original but all of which together shall constitute one and the Same instrument. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be duly executed and delivered all as of the date first above written. [SIGNATURE PAGES (2) FOLLOW] -23- BIG O TIRES, INC. BIG O DEVELOPMENT, INC. By: /s/ John B. Adams By: /s/ John B. Adams ------------------------------- ------------------------- Name: John B. Adams Name: John B. Adams Title: Executive Vice President Title: Vice President BIG O TIRE OF IDAHO, INC. By: /s/ John B. Adams ------------------------------- Name: John B. Adams Title: Vice President [SIGNATURE PAGE TO NOTE PURCHASE AGREEMENT DATED APRIL 27, 1994 - BIG O TIRES, INC.] -24- USG ANNUITY & LIFE COMPANY REPUBLIC WESTERN INSURANCE COMPANY By Equitable Investment Services, Inc., Agent By: /s/ Robert H. Kunnen By: /s/ Bradley P. Newman ------------------------------ ------------------------------ Name: Robert H. Kunnen Name: Bradley P. Newman Title: Managing Director Title: Treasurer [SIGNATURE PAGE TO NOTE PURCHASE AGREEMENT DATED APRIL 27, 1994 - BIG O TIRES, INC.] -25- SCHEDULE I This Schedule I shows the names and addresses of the Purchasers under the foregoing Note Purchase Agreement and the respective principal amounts of the Notes to be purchased by each.
Name and Address of Purchaser Principal Amount ----------------------------- ---------------- USG ANNUITY & LIFE COMPANY $5,000,000 (1) All payments in respect of the Notes shall be made by wire transfer of federal or other immediately available funds to: Bank of New York Acct. #8900084820 Bank ABA #021000018 Attn: Securities Accounting Ref: Big O Tires, Inc., with sufficient information setting forth the full name, interest rate and maturity date of the Notes. (2) Address for all notices of payments: USG Annuity & Life Company c/o Equitable Investment Services, Inc. 604 Locust St. Des Moines, Iowa 50309 Attn: Director, Settlements Telecopy: (515) 282-9538 (3) Address for all other communications: USG Annuity & Life Company c/o Equitable Investment Services, Inc. 604 Locust St. Des Moines, Iowa 50309 Attn: Director, Settlements Telecopy: (515) 282-9538 (4) Tax Identification No.: 73-0663836 REPUBLIC WESTERN INSURANCE COMPANY $3,000,000 (1) All payments in respect of the Notes shall be made by wire transfer of federal or other immediately available funds to:
Bank One Arizona, N.A./Trust A803 Acct. #0686527 Bank ABA #122100024 Attn: Securities Accounting Ref: Big 0 Tires, Inc. with sufficient information setting forth the full name, interest rate and maturity date of the Notes. (2) Address for all notices of payments: Republic Western Insurance Company 2721 North Central Avenue Phoenix, Arizona 85004 Attn: Bradley P. Newman Facsimile: (602) 263-6587 (3) Address for all other communications: Republic Western Insurance Company 2721 North Central Avenue Phoenix, Arizona 85004 Attn: Bradley P. Newman Facsimile: (602) 263-6587 (4) Tax Identification No.: 86-0274508
Exhibit 2(c) Subsidiaries 1. O Advertising, Inc. a. Incorporated in Colorado b. Chief Executive Office: 11755 East Peakview Avenue Englewood, Colorado 80111 2. Big O Tire of Idaho, a. Incorporation in Idaho b . Chief Executive Office: 11755 East Peakview Avenue Englewood, Colorado 80111 3. Big O Retail Enterprises, Inc. a. Incorporated in Colorado b. Chief Executive Office 11755 East Peakview Avenue Englewood, Colorado 80111 4. Big O Development, Inc. a. Incorporated in Colorado b. Chief Executive Office 11755 East Peakview Avenue Englewood, Colorado 80111 5. Big O Distributors, Inc. a. Incorporated in California b. Chief Executive Office 11755 East Peakview Avenue Englewood, Colorado 80111 EXHIBIT A Form of Indenture Recorded at the rest of and WE HEREBY CERTIFY THAT THIS IS A FULL return when recorded to: TRUE AND CORRECT COPY OF THE ORIGINAL DOCUMENT AS THE SAME APPEARS IN THE OFFICE OF THE COUNTY RECORD OF SOLANO COUNTY, STATE OF CALIFORNIA RECORDED ON 4-29-94 @2:00 PM IN BOOK OF OFFICIAL RECORDS AT PAGE SERIAL NO 1994-00044387 CHICAGO TITLE INSURANCE COMPANY BY MARK TORDUCH Nyemaster, Goode, McLaughlin, Voigts, West, Hansell & O'Brien, P.C. 1900 Hub Tower Des Moines, Iowa 50309 Attn: Bradford L. Austin ------------------------------------------------------------------------------ INDENTURE, MORTGAGE, DEED OF TRUST, SECURITY AGREEMENT, AND FINANCING STATEMENT (FIXTURE FILING) from BIG O TIRES, INC. BIG O DEVELOPMENT, INC., and BIG O TIRE OF IDAHO, INC. as Grantors to The Bank of Cherry Creek, N.A. as Indenture Trustee and Douglas R. Dix as Individual Trustee ----------------------- Dated as of April 27, 1994 ------------------------------------------------------------------------------ THIS INSTRUMENT IS TO BE INDEXED IN THE OFFICES OF THE COUNTY RECORDERS IN THE COUNTIES OF SOLANO, CALIFORNIA, ADA, IDAHO, AND (SUBJECT TO SECTION 4.6 HEREIN) CLARK, NEVADA AS A MORTGAGE OR DEED OF TRUST AND A FIXTURE FILING. Recorded at the request of and return when recorded to: Nyemaster, Goode, McLaughlin, Voigts, West, Hansell & O'Brien, P.C., 1900 Hub Tower, Des Moines, Iowa, Attention: Bradford L. Austin TABLE OF CONTENTS ----------------- Page PRELIMINARY STATEMENT...................................... 1 GRANTING CLAUSES ...................................... 2 ARTICLE 1 DEFINITIONS...................................... 4 Section 1.1 Certain Definitions................... 4 Section 1.2 Accounting Terms...................... 15 ARTICLE 2 THE NOTES ....................................... 16 Section 2.1. Issuance and Form of Notes............ 16 Section 2.2. Payment of Notes; Home Office Payment............................. 16 Section 2.3. The Register.......................... 17 Section 2.4. Registered Owners..................... 17 Section 2.5. Transfer and Exchange or Notes........ 17 Section 2.6. New Notes............................. 18 Section 2.7. Cancellation of Notes................. 19 ARTICLE 3 PARTICULAR COVENANTS............................. 19 Section 3.1. Title to Mortgaged Property........... 19 Section 3.2. Further Assurances.................... 19 Section 3.3. Recording............................. 19 Section 3.4. Payment of Notes and Other Obligations......................... 20 Section 3.5. Maintenance of Mortgaged Property..... 20 Section 3.6. Payment of Taxes, Liens............... 20 Section 3.7. Leases................................ 22 Section 3.8. Insurance of Mortgaged Property....... 22 Section 3.9. Existence; Governmental Requirements, etc................... 24 Section 3.10. Continuing Priority................... 25 Section 3.11. After-acquired Property............... 26 Section 3.12. Sale, Demolition of Mortgaged Property............................ 26 Section 3.13. Performance by Trustees............... 26 Section 3.14. Subrogation; Purchase Money Liens..... 27 Section 3.15. Compensation of Trustees.............. 27 Section 3.16. Maintenance of Character of Business.. 27 Section 3.17. Condemnation.......................... 28 Section 3.18. Environmental Protection.............. 28 Section 3.19. Keep Books, Reserves; Payment of Taxes; Compliance with Laws; Corporate Existence; Maintenance of Properties; Insurance............ 30 Section 3.20. Transactions with Affiliates.......... 31 Section 3.21. Limitations on current Indebtedness... 31 Section 3.22. Limitations on Funded Debt............ 32 Section 3.23. Maintenance of Net Worth.............. 32 Section 3.24. Dividends............................. 32 Section 3.25. Restrictions on Merger and Sale of Assets........................... 33 Section 3.26. Limitations on Liens.................. 34 Section 3.27. Restricted Investments................ 35 ARTICLE 4 POSSESSION, USE AND RELEASE OF MORTGAGED PROPERTY................... 35 Section 4.1. Possession and Use of Mortgaged Property............................ 35 Section 4.2. Dispositions of Equipment............. 35 Section 4.3. Confirmatory Instruments.............. 36 Section 4.4. Purchaser Protected................... 36 Section 4.5. Lien on Remaining Mortgaged Property............................ 36 Section 4.6. Release of Vacaville and Recording of Indenture........................ 36 ARTICLE 5 APPLICATION OF MONEYS............................ 38 Section 5.1. Proceeds of Insurance and Condemnation Awards; Restoration.... 38 Section 5.2. Moneys Held as Mortgaged Property..... 39 Section 5.3. Proceeds During Default............... 39 Section 5.4. Escrow................................ 39 ARTICLE 6 REPAYMENT OF NOTES............................... 40 Section 6.1. Mandatory Prepayments of Notes........ 40 Section 6.2. Optional Prepayment of Notes.......... 40 Section 6.3. Notice of Prepayment; Markewhole Computations........................ 40 Section 6.4. Allocation of Partial Prepayments..... 41 Section 6.5. Surrender of Notes; Notation Thereon............................. 41 Section 6.6. Purchase of Notes..................... 41 ARTICLE 7 DEFAULT AND REMEDIES............................. 42 Section 7.1. Events of Default..................... 42 Section 7.2. Sale of Mortgaged Property; Application of Proceeds............. 47 Section 7.3. Purchase by the Trustees.............. 48 Section 7.4. Receivers............................. 49 Section 7.5. Suits by the Trustees................. 49 Section 7.6. Waiver of Remedies.................... 49 Section 7.7. Remedies Cumulative................... 50 Section 7.8. Waiver of Rights...................... 50 Section 7.9. Retention of Possession............... 51 Section 7.10. Direction of Remedies................. 51 Section 7.11. Suit by Registered Owners............. 51 Section 7.12. Waiver of Certain Rights with Respect to Sale of the Security..... 52 ARTICLE 8 THE TRUSTEES..................................... 54 Section 8.1. Rights and Obligations of Trustees.... 54 Section 8.2. The Individual Trustee................ 58 Section 8.3. Resignation of Indenture Trustee...... 58 Section 8.4. Successor Indenture Trustee........... 59 Section 8.5. Resignation and Removal of Individual Trustee.................. 60 Section 8.6. Separate and Co-Trustees.............. 61 Section 8.7. Liability of Trustees................. 62 Section 8.8. Segregation of Moneys................. 62 Section 8.9. Illegal Acts.......................... 62 ARTICLE 9 SUPPLEMENTAL INDENTURES; WAIVERS................. 63 Section 9.1. General............................... 63 Section 9.2. Without Consent of Beneficiaries...... 63 Section 9.3. Consent of All Beneficiaries.......... 63 Section 9.4. Consent of Less Than All Beneficiaries....................... 64 Section 9.5. Exchange; Legend or Notation; Effect.............................. 64 Section 9.6. Consents in Writing................... 65 Section 9.7. Delivery of Supplements............... 65 ARTICLE 10 GENERAL......................................... 65 Section 10.1. Costs and Expenses.................... 65 Section 10.2. Operative Documents................... 65 Section 10.3. Security Agreement; Fixture Filing.... 65 Section 10.4. Reconveyance.......................... 66 Section 10.5. Notices............................... 66 Section 10.6. Successors; Gender.................... 67 Section 10.7. Care by the Beneficiaries or the Trustees............................ 67 Section 10.8. No Obligation on the Beneficiaries or the Trustees..................... 67 Section 10.9. No Waiver; Writing.................... 67 Section 10.10. GOVERNING LAW; SEVERABILITY........... 68 Section 10.11. Waiver................................ 68 Section 10.12. No Merger............................. 69 Section 10.13. Beneficiaries or Trustees Not Joint Venturers or Partners......... 69 Section 10.14. No Third Party Benefits............... 69 Section 10.15. Counterparts.......................... 69 Section 10.16. Table of Contents; Headings........... 69 Section 10.17. No Impairment......................... 69 Section 10.18. Maximum Interest Payable.............. 70 SCHEDULE A-1 - A-3 - Description of the Sites (Vacaville, Bosie, Las Vegas, respectively) SCHEDULE B-1 - B-3 - Certain Permitted Liens (Vacaville, Bosie, Las Vegas, respectively) SCHEDULE C - Form of Note INDENTURE, MORTGAGE, DEED OF TRUST ---------------------------------- SECURITY AGREEMENT, AND FINANCING STATEMENT (FIXTURE FILING) ------------------------------------------------------------ THIS INDENTURE, MORTGAGE, DEED OF TRUST, SECURITY AGREEMENT, AND FINANCING STATEMENT (FIXTURE FILING) (the "Indenture") is made as of April 27, 1994 by and from each of Big O Tires, Inc., a Nevada corporation (the "Company"), having an address at 11755 East Peakview Avenue, Englewood, Colorado 80111, Taxpayer Identification Number 87-0392481, Big O Development, Inc., a Colorado corporation ("BOD"), having an address at 11755 East Peakview Avenue, Englewood, Colorado 80111, Taxpayer Identification Number 84-1105178, and Big O Tire of Idaho, Inc. ("Big O Idaho"), a Idaho corporation, having an address at 11755 East Peakview Avenue, Englewood, Colorado 80111, Taxpayer Identification Number 82-0293051, each as mortgagor, grantor and trustor, to The Bank of Cherry Creek, N.A., a national banking association (the "Indenture Trustee"), and Douglas R. Dix (the "Individual Trustee"), each of such Trustees having an address at 3033 East First Avenue, Denver, Colorado 80206, Attention: Corporate Trust Department, as trustees, mortgagees, and secured parties, for the benefit of the Purchasers referred to below and all subsequent holders from time to time of the Notes described below, as beneficiaries. PRELIMINARY STATEMENT --------------------- The defined terms used but not otherwise defined herein have the meanings set forth in Article 1. --------- The Company and BOD are the owners, subject to certain permitted exceptions described in Schedules B-1 through B-3 hereto, of the Sites described in ------------- --- Schedules A-1 through A-3 hereto, and the Improvements located thereon, and the ------------- --- Appurtenances and Equipment with respect to such Sites (the Sites, the Improvements, the Appurtenances and the Equipment are sometimes collectively called the "Facilities"). The specific party who is the record owner of each respective Site is designated on the appropriate Schedule. In order to refinance bank debt and finance certain business operations, the Company is entering into the Note Purchase Agreement with the Purchasers pursuant to which the Company will issue to the Purchasers its Notes in an aggregate principal amount of $8,000,000. BOD and Big O Idaho (together, the "Guarantors") are each entering into a guaranty of the obligations of the Company under the Notes for the benefit of the Trustees and the Registered Owners. The Company and the Guarantors are executing and delivering this Indenture for the purpose of Granting their respective interest in the Mortgaged Property as security for the payment of the Notes, the interest and premium, if any, due thereon and all other Obligations, including without limitation amounts payable hereunder or under the Note Purchase Agreement to the Purchasers. The Mortgaged Property shall be and remain subject to the lien of -1- this Indenture and shall constitute security for the Obligations so long as the Notes shall remain outstanding and any Obligations remain unpaid. The Company is duly authorized to issue the Notes. The Company and the Guarantors are duly authorized to execute and deliver this Indenture, and all actions required by law and all actions of the Company required therefor have been duly taken. In order to induce the Purchasers to purchase Notes and as a condition of the Purchasers, agreement to purchase Notes, the Company and the Guarantors have agreed to execute, acknowledge and deliver this Indenture. The Company and the Guarantors are sometimes collectively referred to in this Indenture as the "Grantors". GRANTING CLAUSES ---------------- NOW, THEREFORE, THIS INDENTURE WITNESSETH: that the Company and the Guarantors, in consideration of the premises, and in order to secure the payment of the Obligations, including without limitation principal, interest and premium, if any, and other sums payable on the Notes, and to secure the performance of the covenants and agreements contained in the Note Purchase Agreement, the Notes and this Indenture, and to declare the terms and conditions upon and subject to which the Notes are to be issued and delivered, has executed and delivered this Indenture. The Company and the Guarantors have irrevocably Granted, and by these presents each of them does hereby irrevocably Grant, with power of sale and right of entry and possession, unto Trustees and their successors and assigns forever, all of the Company's and Guarantors I respective right, title and interest, whether now owned or hereafter acquired, in and to the Mortgaged Property described in the following Granting Clauses, subject only to those certain permitted exceptions described in Schedules B-1 through B-3: -------------- --- Granting Clause First --------------------- The two separate land parcels respectively described in Schedules A-1 and ------------- A-2, and, concurrently with the exchange described in Section 4.6, the land ---- ------------ parcel described in Schedule A-3 (said land parcels are individually called a ------------ "Site") and collectively called the "Sites"), together with (a) all of the Improvements and the Appurtenances, (b) all claims or demands of the Grantors, in law or in equity, in possession or expectancy of, in and to the Facilities, (c) any insurance or condemnation proceeds to which the Grantors may be entitled with respect to the Facilities, and (d) all rents, income, revenues, issues, awards, proceeds and profits from and in respect of the property described in this Granting Clause First; it being the intention of the parties hereto that, so far as may be permitted by law, all -2- property of the character hereinabove described which is now owned or held or is hereafter acquired by the Grantors and is affixed, attached and annexed to the Sites or the Improvements shall be and remain or become and constitute a portion of the Mortgaged Property and the security covered by and subject to the lien hereof. Granting Clause Second ---------------------- All leases, subleases, licenses, concessions or other agreements, written or verbal, now or hereafter in effect (collectively the "Leases"), which grant a possessory right in and to, or the right to use, the Mortgaged Property or any part thereof, and any and all guarantees of the lessees' performance under the Leases, together with all rents, issues, awards, royalties, revenues, income, deposits, proceeds, earnings, profits (including those derived from business operations) and other benefits paid or payable pursuant to the Leases or in connection with the Mortgaged Property or any part thereof (the "Rents"), and the Grantors are hereby given the license to collect and retain the Rents prior to an Event of Default; it being the Grantors' intention to establish an absolute transfer and assignment of the Leases and Rents, which shall be deemed vested in the Trustees as of the date hereof. Granting Clause Third --------------------- The Equipment and all Proceeds thereof. Granting Clause Fourth ---------------------- Any and all Material Contracts (subject to the Intercreditor Agreement), any and all moneys, any and all accounts containing such moneys, and other property which may from time to time become subject to the lien hereof or which may come into the possession or be subject to the control of Trustees pursuant to this Indenture or any other instrument related to the Mortgaged Property, including without limitation insurance proceeds and all awards which may at any time be made to the Company for the taking by eminent domain of the whole or any part of the Mortgaged Property, or any easement therein and other property, if any, delivered to the Trustees by or on behalf of the Company; it being the intention of the Company and it being hereby agreed that all Mortgaged Property hereafter acquired by the Company, required to be subjected to the lien of this Indenture or intended so to be shall forthwith upon the acquisition thereof by the Company be subject to the lien of this Indenture as if such property were now owned by the Company and were specifically described in this Indenture and Granted hereby or pursuant hereto. -3- TO HAVE AND TO HOLD all and singular the Mortgaged Property, whether now owned or hereafter acquired, unto the Trustees and their respective successors and assigns forever; IN TRUST, NEVERTHELESS, WITH POWER OF SALE AND RIGHT OF ENTRY, upon the terms and conditions herein set forth for the equal and ratable benefit and security of the Notes, without preference, priority or distinction of any Note over any other Note, if any, by reason of difference in time of issuance, sale or otherwise, and for the enforcement of the payment of the principal, premium, if any, and interest on the Notes in accordance with their respective terms, and all other Obligations, including without limitation the other sums payable hereunder or under the Notes or the Note Purchase Agreement, and the performance and observance of the provisions of the Notes, the Note Purchase Agreement and this Indenture, all as herein set forth. PROVIDED ALWAYS, that if the Company or its successors shall pay or cause to be paid in full the Obligations, including without limitation the principal of and interest and premium, if any, on the Notes according to their respective terms and all other sums becoming due and payable hereunder, and the Company shall abide by and comply with each and every covenant and condition set forth herein or in the Notes, then this Indenture and the lien hereof shall cease, terminate and become void, or at the option of the Company be assigned to the Company, and the Trustees, if requested by the Company or required by law, Shall execute and deliver to the party entitled thereto an instrument in form for recording discharging, releasing, reconveying or so assigning this Indenture. IT IS HEREBY COVENANTED, DECLARED AND AGREED that the Notes are to be issued and secured, and that the Mortgaged Property is to be held and disposed of by the Trustees pursuant and subject to the provisions of this Indenture. ARTICLE 1 DEFINITIONS Section 1.1 Certain Definitions. As used in this Indenture, the -------------------- following terms shall have the following meanings: "Act" shall mean the Securities Act of 1933, as amended. ----- "Affiliate" shall mean with respect to any Person, any other Person (i) ----------- directly or indirectly controlling (including, but not limited to, all directors and officers of such Person), controlled by, or under direct or indirect common control with, such Person or (ii) that directly or indirectly owns more than 5% of the Voting Stock of such Person. A Person shall be deemed to -4- control a corporation if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such corporation, whether through the ownership of voting securities, by contract or otherwise. "Appurtenances," shall mean and include all and singular the tenements, -------------- rights, easements, hereditaments, rights of way, privileges, liberties, appendages and appurtenances now or hereafter belonging or in any way appertaining to any of the Sites or the Improvements (including, without limitation, all rights relating to storm and sanitary Sewer, water, gas, electric, railway and telephone Services); all development rights, air rights, water, water rights, water stock, gas, oil, minerals, coal and other substances of any kind or character underlying or relating to any of the Sites; all estate, claim, demand, right, title or interest of the Grantors in and to any street, road, highway or alley (vacated or otherwise) adjoining any of the Sites or any part thereof; all strips and gores belonging, adjacent or pertaining to any of the Sites; and any after-acquired title to any of the foregoing. "Beneficiaries" shall mean the Purchasers and the holders from time to --------------- time of Any of the Notes. "BOD" shall mean Big O Development, Inc., a Colorado corporation, and its ----- permitted successors and assigns as owner of the Boise Facility and of the Las Vegas Facility. "Big O Idaho" shall mean Big O Tire of Idaho, Inc., a Idaho corporation, ------------- and its Permitted successors and assigns. "Boise Facility" shall mean the Site described in Schedule A-2 and the ---------------- ------------ related Improvements and Appurtenances. "Business Day" shall mean any day other than a Saturday or Sunday or other -------------- national holiday. "Capitalized Lease Obligation" shall mean any rental obligation which ------------------------------ under GAAP is or will be required to be capitalized on a balance sheet of the Company or any Subsidiary, or for which the amount of the asset and liability thereunder as if so capitalized should be disclosed in a note to such balance sheet, in each case taken at the amount thereof accounted for as indebtedness (net of interest expense) in accordance with GAAP. "Closing Date" shall mean April 29, 1994. -------------- "Collateral" shall mean, collectively, the Equipment and all Proceeds ------------ thereof. "Company" shall mean Big O Tires, Inc., a Nevada corporation, and its --------- permitted Successors and assigns as owner of -5- the Vacaville Facility, and shall include all Persons claiming under or through it and all Persons liable for the payment or performance by it of any of the Obligations, whether or not such Persons shall have executed the Notes or this Indenture. "Corporate Trust Office" shall mean the corporate trust office of the ------------------------ Indenture Trustee, which at the date hereof is located at 3033 East First Avenue, Denver, Colorado 80206, Attention:Corporate Trust Department. "Consolidated" shall mean, when used in combination with any other -------------- capitalized term, such term with the respect to the Company and its Subsidiaries determined on a consolidated basis. "Consolidated Total Capitalization" shall mean Consolidated Net Worth plus ----------------------------------- Debt of the Company and its Subsidiaries taken on a consolidated basis. "Current Indebtedness" shall mean any Debt which is properly classified ---------------------- as a current liability in accordance with GAAP. "Debt" of any Person shall mean all obligations other than trade payables, ------ accrued expenses, warranty reserve, deferred taxes and income taxes incurred in the ordinary course of business which would in accordance with GAAP be classified as debt and in any event will include Capitalized Lease Obligations and Guarantees. In any case undrawn letters of credit shall be excluded from this definition of Debt. "Default" shall mean an event which, with the giving of notice or lapse of --------- time, or both, would constitute an Event of Default. "EBITDA" shall mean for any period Consolidated Net Income, adjusted by -------- adding back (i) current and deferred income taxes, (ii) the amount of all amortization of intangibles and depreciation that were deducted in arriving at Net Income (iii) Fixed Charges (excluding dividends payable on any preferred stock of the Company) (iv) one-time charges incurred in 1993 related to the Company's withdrawn equity offering, reserves for warehouse consolidations costs, and cumulative effective of changes in accounting principles, and (v) one-time charges to be incurred in 1994 with respect to prepayment penalties in connection with the refinancing of the Boise Facility. "Environmental Claims" shall mean, with respect to any Person, any written ---------------------- notice, claim, demand or other written communication (collectively, a "Claim") by any other Person alleging or asserting such Person's liability for investigatory costs, cleanup costs, governmental response costs, damages to natural resources or other property, personal injuries, fines or penalties arising out of, based on or resulting from (i) the -6- presence, or Release into the environment, of any Hazardous Materials at any location, whether or not owned by such Person, or (ii) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law. The term "Environmental Claim" shall include, without limitation, any claim by any Governmental Body for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law, and any claim by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from the presence of Hazardous Materials or arising from alleged injury or threat of injury to health, safety or the environment. "Environmental Laws" shall mean any and all present and future Federal, -------------------- state, local and foreign laws, rules or regulations, and any orders or decrees, in each case as now or hereafter in effect, relating to the regulation or protection of human health, safety or the environment or to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals or toxic or hazardous substances or wastes into the indoor or outdoor environment, including without limitation ambient air, soil, surface water, ground water, wetlands, land or subsurface strata, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, chemicals or toxic or hazardous substances or wastes. "Equipment" shall mean all machinery, apparatus, equipment, goods (other ----------- than inventory), systems, building materials, carpeting, furnishings, fixtures and property of similar kind and nature, now or hereafter located in or upon or affixed to the Sites or Improvements, or any part thereof, or used or usable in connection with any construction on or any present or future operation of the Sites or Improvements, now owned or hereafter acquired by Grantors. "Escrow" shall mean the escrow fund and account established pursuant to -------- Section 5.4 of this Indenture. "Event of Default" shall have the meaning set forth in Section 7.1. ------------------ ----------- "Facility" shall mean, collectively with respect to a particular Site, the ---------- Site and the Appurtenances, Improvements and Equipment with respect to such Site; and "Facilities" shall mean, collectively, all of the Facilities then purported to be subjected to the lien of this Indenture. "Fixed Charges" shall mean for a period the total consolidated (i) interest --------------- expense (including interest expense associated with Capitalized Lease Obligations) both paid and accrued, (ii) Rental Expense and (iii) dividends payable on -7- preferred stock of the Company and its Subsidiaries for such period. "Fixed Charges Coverage Ratio" shall mean the ratio the numerator of which ------------------------------ is EBITDA and the denominator of which is Fixed Charges. "Funded Debt" shall mean any Debt other than Debt which is properly ------------- classified as Current Indebtedness. "GAAP" shall mean generally accepted accounting principles from time to ------ time in the United States. "Governmental Body" shall mean any federal, state, municipal or other ------------------- governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign. "Grant" shall mean grant, convey, assign, create a security interest in, ------- bargain, sell, pledge, give, transfer, mortgage and set over. "Guarantee" shall mean all debt guaranteed, directly or indirectly, or ----------- transactions which are substantially equivalent to, or have similar economic effect of, a guarantee such as any agreement to (a) purchase debt on property or (b) support or maintain a balance sheet condition. "Guarantors" shall mean BOD and Big O Idaho, jointly and severally. ------------ "Hazardous Material" shall mean, collectively, (i) any petroleum or -------------------- petroleum products, flammable explosives, radioactive materials, asbestos in any form that is or could become friable, urea formaldehyde foam insulation, and transformers or other equipment that contain dielectric fluid containing polychlorinated biphenyls (PCBS), (ii) any chemicals or other materials or substances which are now or hereafter become defined as or included in the definition of "hazardous Substances," "hazardous wastes," "hazardous materials," "extremely hazardous wastes," "restricted hazardous wastes," "special wastes," "toxic substances," "toxic pollutants," "contaminants," "pollutants" or words of similar import under any Environmental Law, and (iii) any other chemical or other material or substance or waste, exposure to which is now or hereafter prohibited, limited or regulated under any Environmental Law. "Improvements" shall mean and include all buildings, structures, fixtures -------------- and other improvements and property of every kind and character now or hereafter erected on or -affixed or attached to any of the Sites, together with all building, storage tanks or construction materials, equipment, appliances, machinery, plant equipment, fittings, apparatus, fixtures and other articles -8- of any kind or nature whatsoever now or hereafter owned by the Company and affixed to or attached to any of the Sites. "Indenture Trustee" shall mean The Bank of Cherry Creek, N.A., a national ------------------- banking association, and its successors and permitted assigns as indenture trustee under this Indenture. "Individual Trustee" shall mean Douglas R. Dix and his successors and -------------------- permitted assigns as individual trustee under this Indenture. "Intercreditor Agreement" shall mean the Consent, Acknowledgement and ------------------------- Access Agreement dated this same date between the Trustees and Barclays Business Credit, Inc. ("Barclays"). "Investment" shall mean any direct or indirect purchase or other ------------ acquisition of stock or other securities of or any partnership interest in any other Person, any direct or indirect loan, advance (other than advances to employees for moving and travel expenses, drawing accounts and similar expenditures in the ordinary course of business) or capital contribution by such Person to any other Person, including all Debt and accounts receivable from such other Person which are not current assets or did not arise from sales to such other Person in the ordinary course of business, and any direct or indirect purchase or acquisition by such Person of any assets other than assets used in the ordinary course of business. "Las Vegas Facility" shall mean the Site described in Schedule A-3 and the -------------------- ------------ related Facility. "Lien" shall mean any mortgage, deed of trust, security interest, pledge, ------ hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), preference, priority or other security agreement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement and any lease having substantially the same effect as any of the foregoing). "Lien (or 'lien') of this Indenture" and terms of like import shall mean ------------------------------------ the Lien granted to the Trustees hereby (including the after-acquired property clauses hereof) or subsequently granted hereunder or pursuant hereto to the Trustees. "Makewhole Premium Amount" means, in connection with any prepayment of a -------------------------- Note, in whole or in part, the amount (but not less than zero) equal to the excess, if any, of (a) the sum of the Present Values (as hereinafter defined) of (1) the principal amount of such Note or portion thereof being prepaid (assuming the mandatory prepayments pursuant to Section 6.1 are paid when due) and (2) the ----------- amount -9- of interest which would have been payable on each interest payment date on the amount of such principal being prepaid (assuming the mandatory prepayments pursuant to Section 6.1 and interest payments are paid when ----------- due), over ---- (b) the principal amount of such Note being prepaid. For purposes of this definition, "Present Value" shall be determined in accordance with generally accepted financial practice by discounting (on a Semiannual basis for interest and principal) to the date of such prepayment at a discount rate per annum equal to the sum of the applicable Treasury Yield plus 0.50%; and the "Treasury Yield" for such purpose shall be determined as of the date of such prepayment by reference to the yields of those actively traded "On The Run" United States Treasury securities having a maturity equal to the then-remaining weighted average life to maturity of such Note, provided that if such weighted average life to maturity is not equal to the maturity of an actively traded "On The Run" United States Treasury security, such yield shall be obtained by linear interpolation (calculated to the nearest one-twelfth of a year) from the yields of actively traded "On The Run" Treasury securities having a maturity closest to such weighted average life to maturity, using the latest one-week moving average ending on the date of prepayment for the closest term to maturity prior to and the closest term to maturity after such weighted average life For purposes hereof, "On The Run" United States Treasury securities refers to those United States Treasury securities which are most recently auctioned. "Material Contracts" shall mean all contracts, instruments, licenses, -------------------- permits and other agreements which either individually or in the aggregate are material to the conduct of the operation of any Facility. "Moody's" shall mean Moody's Investors Service, Inc. --------- "Mortgaged Property" shall mean and include all property subjected or -------------------- intended to be subjected to the lien of this Indenture. "Net Income" shall mean net income (or net loss), determined in accordance ------------ with GAAP, but excluding: (a) proceeds of insurance policies; (b) net after tax gains arising from (i) from any write-up of assets or (ii) the acquisition of debt securities for a cost less than principal and accrued interest; (c) net after tax gains arising from (i) the sale or other disposition of capital assets or (ii) extraordinary items or transactions of a non- recurring or non-operating and -10- material nature (including net operating loss carry forward credits) or relating to the discontinuance of operations; (d) net income, prior to the date of acquisition, of any other Person acquired in any manner; (e) any deferred credit (or amortization of a deferred credit) arising from the acquisition in any manner of any other Person. "Net Worth" shall mean with respect to any Person the net worth of such ----------- Person determined in accordance with GAAP. "New Note" shall have the meaning set forth in Section 2.6. ---------- ----------- "Note Purchase Agreement" shall mean the Note Purchase Agreement dated as ------------------------- of this same date between the Company and the Purchasers, relating to the Notes. "Note Rate" shall mean Eight and seventy-one hundredths percent (8.71%) ----------- per annum. "Notes" shall mean the Company's 8.71% Senior Secured Notes due 2004 in the ------- aggregate original principal amount of $8,000,000, substantially in the form of Schedule C hereto, together with any notes executed in exchange or substitution ---------- for any thereof pursuant to Section 2.5. ----------- "Obligations" shall mean and include all of the following: (a) the ------------- principal of, and interest and premium, if any, on, the Notes; (b) all indebtedness of any kind arising under, and all amounts of any kind which at any time become due or owing by the Company to the Trustees or the Beneficiaries under or with respect to this Indenture, the Note Purchase Agreement or the Notes; (c) all of the covenants, obligations and agreements of the Company (and the truth of all representations and warranties of the Company) to or for the benefit of the Trustees or the Beneficiaries in, under or pursuant to this Indenture, the Note Purchase Agreement and the Notes; (d) all advances, costs or expenses paid or incurred by the Trustees or the Beneficiaries to protect any or all of the Mortgaged Property and other collateral under this Indenture, the Note Purchase Agreement or the Notes, to perform any obligation of the Company hereunder and any obligation of the Company under the Note Purchase Agreement or the Notes, or to collect any amount owing by the Company to the Trustees or the Beneficiaries which is secured hereby; (e) any and all other obligations of the Company to the Trustees or the Beneficiaries, in each case howsoever created, arising or evidenced, whether direct or indirect, joint or several, absolute or contingent, or now or hereafter existing, or due or to become due, arising out of -11- or in connection with this Indenture, the Note Purchase Agreement or the Notes; (f) interest on all of the foregoing to the extent provided in this Indenture, the Note Purchase Agreement or the Notes; and (g) all costs of enforcement and collection of this Indenture, the Note Purchase Agreement, the Notes and the Obligations. "Old Note" has the meaning set forth in Section 2.6. ---------- ----------- "Opinion of Counsel" shall mean an opinion of any attorney or firm of -------------------- attorneys reasonably acceptable to the Trustees, who may be counsel for the Company or a Registered Owner; but who may not be a full-time employee or affiliate of the Company. "Operating Permits" has the meaning set forth in Section 2(I) of the Note ------------------ Purchase Agreement. "Operative Documents" shall mean the Note Purchase Agreement, this --------------------- Indenture and the Notes. "Order" shall mean any order, writ, injunction, decree, judgment, award, ------- determination, direction or demand. "Outstanding" shall mean, with reference to Notes, as of any particular ------------- time, all Notes theretofore issued pursuant to this Indenture, except (a) Notes theretofore cancelled by the Indenture Trustee or surrendered to the Indenture Trustee for cancellation; (b) Notes theretofore paid in full or Notes required to be prepaid in full within 30 days thereafter, provided that, in the case of Notes so to be prepaid, cash sufficient for such prepayment thereof shall theretofore have been deposited with, or shall then be held by, the Indenture Trustee in accordance with the provisions of this Indenture; (c) Notes in exchange or substitution for which other Notes shall theretofore have been issued pursuant to Section 2.6; and (d) for purposes of determining whether the ----------- Registered Owners of the requisite principal amount of Notes outstanding have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Notes registered in the name of the Company or any nominee, Affiliate or agent of any thereof, or any successors in interest to its interests in the Facilities. "Overdue Rate" shall mean a rate per annum equal to the lesser of (a) the -------------- Note Rate plus 4% per annum, and (b) the maximum non-usurious rate from time to time permitted by applicable law to be contracted for, or charged to, or received from the Person involved. "Permitted Liens" with respect to any Facility shall mean: ----------------- -12- (a) easements, rights-of-way, servitudes, other similar reservations, rights and restrictions and other minor defects and irregularities affecting title to such Facility, none of which individually or in the aggregate materially lessens the value of such Facility or materially impairs the use thereof for the purpose held by the Company; (b) the right reserved to or vested in any municipality or public authority by the terms of any right, power, franchise, grant, license, permit, provisions of law, zoning law or use regulation to terminate such right, power, franchise, grant, license, permit, provision of law, zoning law or use regulation or to condemn, appropriate, recapture or designate a purchaser of such Facility; (c) any liens for taxes, assessments and other governmental charges and any liens of mechanics, materialmen and laborers for work or services performed or materials furnished in connection with such Facility, which, in any case, are not due and payable, or the amount or validity of which are being contested at the time as permitted pursuant to Section 3.9; ----------- (d) the matters identified as Permitted Liens in the applicable Schedule B ---------- (1-3) with respect to such Facility; and ----- (e) the lien of this Indenture and any rights Granted hereby. "Person" or "person" shall mean any individual, partnership, joint venture, -------- -------- corporation, trust, unincorporated organization or a government or agency or political subdivision thereof, or any other entity. "Proceeds" shall have the meaning assigned that term under the Uniform ---------- Commercial Code as in effect in any relevant jurisdiction or under other relevant law and, in any event, shall include, but not be limited to, (i) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to the Trustees or Company from time to time with respect to any of the Collateral, (ii) any and all payments (in any form whatsoever) made or due and payable to Company from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any governmental authority (or any person acting under color of governmental authority), (iii) products of the Collateral described herein and (iv) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral. -12- "Purchasers" shall mean each of USG Annuity & Life Company, and Republic ------------ Western Insurance Company, so long as each (or its nominee) is the Registered Owner of any of the Notes. "Qualified Institutional Buyer" shall have the meaning set forth in Rule ------------------------------- 144A promulgated under the Act. "Recordable Documents" has the meaning set forth in Section 3.3. ---------------------- ----------- "Register" shall have the meaning set forth in Section 2.3. ---------- ----------- "Registered Owner" means the Person in whose name a Note is registered on ------------------ the Register. "Registry Office" has the meaning set forth in Section 2.3. ----------------- ------------ "Release" shall mean any release, spill, emission, leaking, pumping, -------- injection, deposit, disposal, "discharge, dispersal, leaching or migration into the indoor or outdoor environment including without limitation the movement of Hazardous Materials through ambient air, soil, surface water, ground water, wetlands, land or subsurface strata. "Rental Expense" shall mean the total amount paid or to be paid in any ---------------- fiscal year by a lessee under any lease having a remaining term in excess of one year from the end of the lessee's most recently completed fiscal year. Amounts paid on account of maintenance, ordinary repairs, insurance, and other similar charges to the extent such amounts are paid to the lessor or his designate(s) are included in rental expense. To the extent rental payments are received on leased property, they will be credited against Rental Expense on each property to the extent they have not been included in revenue, all in accordance with GAAP. "Required Holders" shall mean the Registered Owners of at least a majority ------------------ of the unpaid principal amount of Outstanding Notes. "Responsible Officer" shall mean the Chief Executive Officer, the --------------------- President, the Chief Financial Officer or the Treasurer of the Company. "Senior Funded Debt" shall mean the Notes and any Funded Debt of the -------------------- Company which by its terms is not subordinated in right of payment to the Notes. "Sites" has the meaning set forth in Granting Clause First. ------ ---------------- ----- -14- "S&P" shall mean Standard & Poor's Corporation. ----- "Subsidiary" Shall mean a corporation with respect to which more than 50% ------------ of the Voting Stock (other than stock having such power only by reason of the happening of a contingency) is at the time owned by the Company or by one or more Subsidiaries of the Company. "Subsidiary Guaranty" shall mean the Guaranty, dated as of the date hereof, --------------------- from the Guarantors in favor of the Trustees and the Beneficiaries. "Substantial Part" shall mean, as of the date, assets having a net book ------------------ value equal to or in excess of 15% of Consolidated Total Assets. "Trustees" shall mean the Indenture Trustee and the Individual Trustee as ---------- trustees under this Indenture, together with all co-trustees and separate trustees appointed as provided herein. "Vacaville Facility" shall mean the Site described in Schedule A-1 and the -------------------- ------------ related Improvements and Appurtenances. "Voting Stock" shall mean securities of any class or classes, the holders -------------- of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the corporate directors (or Persons performing similar functions). "Wholly Owned Subsidiary" shall mean any Subsidiary all of the equity ------------------------- ownership of which (other than directors' qualifying shares required by law) is at the time owned by the Company and/or one or more other Wholly Owned Subsidiaries. Section 1.2 Accounting Terms. All accounting terms used herein which are ----------------- not expressly defined in this Indenture have the meanings respectively given to them in accordance with GAAP. Except as otherwise specifically provided herein, all computations made pursuant to this Indenture or the Note Purchase Agreement shall be made in accordance with GAAP and all balance sheets and other financial statements shall be prepared in accordance with GAAP consistently applied. Any consolidated financial statement or financial computation with respect to the Company and its Subsidiaries required by this Indenture or the Note Purchase Agreement shall be done in accordance with GAAP; and, if at the time that any such statement or computation is required to be made the Company shall not have any Subsidiary, such terms shall mean a financial statement or a financial computation, as the case may be, with respect to the Company only. -15- ARTICLE 2 THE NOTES Section 2.1. Issuance and Form of Notes. The Company shall execute and --------------------------- deliver to the Indenture Trustee for authentication Notes in the original principal amount of $8,000,000, together with a written order of its president or any vice president requesting authentication and delivery thereof to each of the Purchasers. The Indenture Trustee shall authenticate and deliver such Notes in accordance with such order. Notes shall be issued pursuant to this Indenture and shall be substantially in the form of Schedule C hereto duly completed. All ---------- Notes shall be dated and accrue interest at the Note Rate from the date of authentication thereof, which shall be the Closing Date in the case of all Notes originally issued hereunder, and accrued interest shall be due and payable quarterly in arrears in accordance with the terms of the Notes. No Note shall be valid or become obligatory for any purpose or be binding upon the Company, or be entitled to the benefits and security of this Indenture, unless and until it has been authenticated by the Indenture Trustee's execution of the certificate of authentication thereon in the form set forth at the end of the form of Note in Schedule C hereto. The authentication and delivery by the Indenture Trustee ---------- of any Note shall be conclusive evidence that such Note has been duly issued and is entitled to the benefits and security of this Indenture. Section 2.2. Payment of Notes; Home Office Payment. The principal of, -------------------------------------- premium, if any, and interest on the Notes shall be payable at the Corporate Trust office in lawful money of the United States of America, against presentation of the Notes for notation of the payment or prepayment made thereon, or in the case of a payment or prepayment which will discharge all indebtedness of the Company evidenced thereby, against surrender thereof. Notwithstanding the foregoing sentence, if there shall be filed with the Indenture Trustee an executed copy of an agreement between the Company and the Registered Owner of any Note or the Person for whom such registered Owner is a nominee, or a conformed copy thereof certified by the Company to be a true and complete copy thereof, to the effect that (i) the Company will cause all amounts which become due and payable on such Note to be paid by wire transfer of immediately available funds to such Registered Owner at its address for the payment or prepayment of Notes specified in such agreement, without presentation of such Note to the Indenture Trustee, and (ii) such Registered Owner or Person will not sell, transfer or otherwise dispose of such Note, other than as provided in Section 2.5, then the Company and the Indenture Trustee shall, until ----------- such Note has been transferred, pay all amounts which become due and payable on such Note in accordance with such agreement. The Note Purchase Agreement, which shall be treated as if filed with the Indenture Trustee, constitutes such an agreement. -16- Section 2.3. The Register. The Company will cause to be kept at the ------------- Corporate Trust Office (the "Registry Office"), one or more books (the "Register") for the registration of the Notes (including all transfers) and the names and addresses of the Registered Owners of the Notes. The Company hereby appoints the Indenture Trustee (i) its registrar to keep the Register, and (ii) its agent for the payment, transfer and exchange of Notes. All transfers of the Notes and the names and addresses of the transferees of the Notes shall be registered in the Register under such reasonable regulations as the Indenture Trustee may prescribe. Section 2.4. Registered Owners. The Company and the Indenture Trustee will ------------------ deem and treat the Registered Owners of the Notes as the absolute owners thereof (whether or not such Notes shall be overdue) for all purposes, and neither the Company nor the Indenture Trustee will be affected by any notice to the contrary, and payment of the principal of, premium, if any, and interest on the Notes shall be made only to the Registered Owners thereof. All such payments so made shall be valid and effective to satisfy and discharge the liability of the Company upon the Notes to the extent of the sum or sums so paid. Section 2.5. Transfer and Exchange of Notes. (a) The Notes may be ------------------------------- transferred only on the Register. Any Note may be transferred on the Register if such Note is surrendered for cancellation at the Registry Office and is accompanied by an instrument of transfer reasonably satisfactory to the Indenture Trustee. A new Note, executed by the Company and authenticated by the Indenture Trustee and registered in the name of the transferee in a principal amount equal to the original principal amount of the transferred Note, shall be delivered by the Indenture Trustee to the transferee in exchange of the transferred Note. A Note shall not be registered in the name of and delivered to any transferee unless such transfer is: (1) to the Company; (2) to a Person the Registered Owner reasonably believes is a Qualified Institutional Buyer purchasing for its own account or for the account of a Qualified Institutional Buyer that is aware that the transfer is being made in reliance on Rule 144A of the Act; or (3) pursuant to an exemption from registration in accordance with Rules 144 or 145 under the Act. The Trustees shall conclusively rely upon an Opinion of Counsel as to the compliance of any transfer with the requirements set forth herein. With a view to making available to each Registered Owner the benefits of Rule 144A promulgated under the Act (which Rule as used herein includes the present Rule 144A and any other, additional, supplemented or analogous rule or regulation of the Securities Exchange Commission) Company covenants and agrees to provide to each Registered Owner desiring to avail itself of Rule 144A, within 10 Business Days of written request, such information as is required to be furnished pursuant to Rule 144A by an issuer to a prospective purchaser of securities. -17- (b) Any Note may be exchanged for a new Note or Notes if the Note to be so exchanged is surrendered for cancellation at the Registry Office and is accompanied by the request of the Registered Owner thereof specifying the denomination of the new Note or Notes to be issued in exchange therefor. A new Note or Notes, executed by the Company and authenticated by the Indenture Trustee and payable to such Registered Owner in the denominations so requested and in an aggregate principal amount equal to the original principal amount of the Note to be so exchanged, shall be delivered by the Indenture Trustee to such Registered Owner in exchange for the Note to be so exchanged. No service charge shall be made for any exchange or transfer of any Note, but the Company may require payment of a sum to cover any tax or governmental charge that may be imposed with respect thereto. (c) If any Note shall become mutilated or be destroyed, lost or stolen, upon request of the Registered Owner thereof, a new Note, executed by the Company and authenticated by the Indenture Trustee and payable to such Registered Owner in the same original principal amount as the Note so mutilated, destroyed, lost or stolen, shall be delivered by the Indenture Trustee to such Registered Owner in exchange for the Note so mutilated, destroyed, lost or stolen, provided that (i) in the case of a mutilated Note, such Note shall be surrendered for cancellation at the Registry Office and (ii) in the case of a destroyed, lost or stolen Note, the Registered Owner thereof shall furnish to the Company and the Indenture Trustee such security or guaranty as may be reasonably required by them to save them harmless and to evidence to their reasonable satisfaction the destruction, loss or theft of such Note and the ownership thereof, provided that in the case of any Purchaser or any other Registered Owner that is an institutional investor, its unsecured agreement of indemnification shall be deemed sufficient security or guaranty. Section 2.6. New Notes. Each new Note (herein, in this Section 2.6, called ---------- ----------- a "New Note") issued pursuant to Section 2.5 in exchange for, in substitution ----------- for or in lieu of any of the Notes (herein, in this Section 2.6, called an "Old ----------- Note") shall be dated the date of such Old Note. The Indenture Trustee shall mark on each New Note (i) the date to which interest has been paid on such Old Note, and (ii) all payments and prepayments of principal made on such Old Note which are allocable to such New Note. Interest shall be deemed to have been paid on such New Note to the date to which interest was paid on such Old Note, and all payments and prepayments of principal marked on such New Note, as provided in clause (ii) above, shall be deemed to have been made thereon. Any New Note issued pursuant to Section 2.5 in exchange for or in substitution for ----------- or in lieu of an Old Note shall be the valid obligation of the Company evidencing the same debt as such Old Note and shall be entitled to the benefits and security of this Indenture to the same extent as such old Note. No service charge shall be made for any exchange or transfer of the Note, but the -18- Company may require payment of a sum to cover any tax or governmental charge imposed with respect thereto. Section 2.7 Cancellation of Notes. All Notes surrendered to the Indenture ---------------------- Trustee for the purpose of payment, prepayment, transfer or exchange Shall be cancelled by it, and no Notes shall be issued in lieu thereof except as expressly required or permitted by this Indenture. The Indenture Trustee shall hold all such cancelled Notes until this Indenture shall have been discharged, at which time the Indenture Trustee shall deliver such cancelled Notes to the Company in the manner necessary to effect the discharge and release of this Indenture. ARTICLE 3 PARTICULAR COVENANTS FURTHER TO PROTECT THE SECURITY OF THIS INDENTURE AND TO SECURE THE PAYMENT AND PERFORMANCE OF THE OBLIGATIONS, THE COMPANY REPRESENTS AND WARRANTS TO, AND COVENANTS WITH, THE TRUSTEES AND THE BENEFICIARIES AS FOLLOWS: Section 3.1. Title to Mortgaged Property. The Company warrants that (a) --------------------------- the Company, with respect to the Vacaville Facility, and BOD with respect to the Boise Facility and the Las Vegas Facility, is lawfully and indefeasibly seized and possessed of the Mortgaged Property, and has good and marketable title to the same, free and clear of all Liens, other than Permitted Liens, (b) the Company and the Guarantors have good and lawful right and full power and authority to Grant the Mortgaged Property owned by them, and (c) the Company and the Guarantors and their respective successors and assigns will forever warrant and defend the Mortgaged Property against all claims and demands whatsoever. While both the Vacaville Site and the Boise Site are adjacent to real estate owned by the Company and by BOD, respectively, such adjacent property contains no structures or other improvements (except streets, utilities and the like). Section 3.2. Further Assurances. The Company will, at its expense, do, ------------------- execute, acknowledge and deliver or cause to be done, executed, acknowledged and delivered all such further acts, instruments and assurances reasonably required by the Trustees for the better Granting to the Trustees of the Company's interest in the Mortgaged Property hereby Granted or for carrying out the intention of, or facilitating the performance of, this Indenture. Section 3.3. Recording. The Company will, upon the execution and delivery --------- hereof and thereafter from time to time, cause this Indenture, each supplement and amendment to this Indenture, each recordable instrument or document delivered pursuant to Section 3.2 and all financing statements with respect ----------- -19- to the Mortgaged Property (collectively called the "Recordable Documents") to be filed, indexed, registered and recorded as may be required by law to publish notice of and maintain the lien of this Indenture upon the Mortgaged Property, to publish notice of and protect the validity and enforceability of the Recordable Documents and to perfect and to preserve the priority of the respective Liens of the Recordable Documents. The Company and Guarantors will, from time to time, perform or cause to be performed any other act as required by law, and will execute or cause to be executed any and all further instruments (including financing statements, continuation statements and similar statements with respect to any of said documents) reasonably requested by the Trustees or the Purchasers for such purposes. If the Company or the Guarantors shall fail to comply with this Section, the Trustees and each of them shall be and is hereby irrevocably appointed the agent and attorney-in-fact of the Company and the Guarantors to comply therewith (including the execution, delivery and filing of such financing statements and other instruments), but this sentence shall not create an obligation of the Trustees or either of them to take any action and shall not prevent any default in the observance of this Section from constituting an Event of Default. To the extent permitted by law, the Company will pay all filing, registration and recording fees and charges, documentary stamps, mortgage taxes and intangible taxes incident to or in connection with the preparation, execution, delivery or acknowledgment of the Recordable Documents, any instruments of further assurance and the Notes. The Company also will pay all reasonable costs and expenses of the Trustees and the Beneficiaries, including without limitation attorney's fees, costs and disbursements, title insurance premiums, search fees and survey costs incident to or in connection with the preparation, execution, delivery or acknowledgment of the Recordable Documents, any instruments of further assurance and the Notes. Section 3.4. Payment of Notes and Other Obligations. The Company agrees --------------------------------------- that it will duly and punctually pay all amounts to become due under the Notes in accordance with this Indenture and the Notes and all other Obligations in accordance with this Indenture, the Note Purchase Agreement and the Notes. Section 3.5. Maintenance of Mortgaged Property. The Company will maintain --------------------------------- and operate, or cause to be maintained or operated, the Facilities and other Mortgaged Property in good repair, working order and condition, ordinary wear and tear excepted. Section 3.6. Payment of Taxes, Liens. (a) The Company will pay and ------------------------ discharge before the date on which any fine, penalty, interest or cost may be added or imposed by law for the nonpayment thereof, all taxes of every kind and nature, water rates, sewer rents and assessments, levies, permits, inspection and license fees and all other charges imposed upon or assessed against -20- the Mortgaged Property or any part thereof (collectively, "Taxes") or upon the ------- revenues, rents, issues, income and profits of the Sites or arising in respect of the occupancy, uses or possession thereof, and the Company will exhibit to the Indenture Trustee, within ten days after the same shall have been paid, a copy of the tax statement and of the check issued in payment of the same, together with the certificate of a Responsible Officer that the check was duly delivered in payment thereof, with respect to the payment of the Taxes and other charges which may be or become a prior lien on the Mortgaged Property or any portion thereof. Should the Company default in the payment of any of the Taxes or other charges, the Trustees or the Beneficiaries may, but shall not be obligated to, pay the same or any part thereof and the Company will, on demand, reimburse the Trustees or the Beneficiaries, as the case may be, for all amounts so advanced, together with interest thereon at the Overdue Rate from the date such amounts are advanced until the same are paid to the Trustees or the Beneficiaries, as the case may be. (b) the Company at all times will keep the Mortgaged Property free from the liens of mechanics, laborers, contractors, subcontractors and materialmen and, except for the Permitted Liens, free from any and all other liens of any kind or nature whatsoever. If any such liens shall be recorded, the Company will forthwith deliver copies thereof to the Indenture Trustee and, within ten days after such recording, the Company will cause the same to be discharged of record by payment, bonding or in such other manner as shall be satisfactory to the Indenture Trustee, in its sole discretion, and will exhibit to the Indenture Trustee, upon demand, evidence satisfactory to the Indenture Trustee, in its sole discretion, of such discharge. (c) Nothing in this Section 3.6 shall require the payment or discharge of ----------- any obligation imposed upon the Company by subsection (a) or (b) of this Section 3.6 as long as the Company shall in good faith and at its own expense ----------- contest the same or the validity thereof by appropriate legal proceedings which operate to prevent the collection thereof or other realization thereon and the sale or forfeiture of the Mortgaged Property or any part thereof to satisfy the same; provided, however, that (i) during such contest the Company will, at the option of the Indenture Trustee, provide security satisfactory to the Indenture Trustee, assuring the discharge of the Company's obligation hereunder and of any additional interest charge, penalty or expense arising from or incurred as a result of such contest, (ii) during such contest the Company will deliver evidence satisfactory to the Indenture Trustee of such contest, (iii) such proceeding is diligently prosecuted, and (iv) if at any time forfeiture, loss or diminution of the value of the Mortgaged Property or any portion thereof is threatened, then the Company will make such payment in sufficient time to prevent such forfeiture, loss or diminution of value. -21- Section 3.7. Leases. The Company and BOD will not enter into any Lease or ------ modify, amend, cancel, extend, renew, accept for surrender or otherwise change in any manner any of the terms, covenants or conditions of any Lease or consent to any assignment of any lease or any subletting of any portion of the Site subject to any Lease, in each case except for Leases entered into in the ordinary course of the Company's or BOD's business as conducted on the Closing Date and other Leases approved by the Required Holders (which approval shall not be unreasonably withheld). The Company will not assign, mortgage or otherwise encumber any of the Leases or any of the Rents due or to become due thereunder or to which the Trustees or the Beneficiaries may now or hereafter become entitled. Section 3.8. Insurance of Mortgaged Property. (a) The Company will provide ------------------------------- and keep in full force and effect, or require to be provided and kept in full force and effect, for the benefit of the Trustees and the Beneficiaries, insurance with respect to the Mortgaged Property as hereinafter provided: (i) insurance for the Facilities (A) against loss or damage by fire, lightning, windstorm, tornado, hail and such other further and additional hazards of whatever kind or nature as are now or hereafter may be covered by standard extended coverage "all risk" endorsements (including, without limitation, vandalism, malicious mischief and damage by water) of whatsoever kind, (B) against war risks as, when and to the extent such insurance is obtainable from the United States of America or an agency thereof, (C) against flood disaster pursuant to the Flood Disaster Protection Act of 1973, 84 Stat. 572, 42 U.S.C. 4001 for each Facility located in an area identified by the United States Department of Housing and Urban Development as a flood hazard area, and (D) when and to the extent required by the Trustees or the Beneficiaries, against loss or damage by earthquake and loss of rentals and business interruption due to any of the foregoing causes and any other risk insured against by persons operating properties similar to the Facilities and located in the vicinity of the Facilities or operations similar to the operations conducted at the Facilities; (ii) insurance for demolition and increased cost of construction coverage; (iii) if a sprinkler system is or shall be located in the Facilities, sprinkler leakage insurance; (iv) comprehensive public liability insurance with respect to the Facilities and the operations related thereto, whether conducted on or off the Facilities, -22- against liability for personal injury, including bodily injury and death, and property damage. Such comprehensive public liability insurance shall be on an occurrence basis or on a "modified occurrence basis (seven-year claim period)" and shall specifically include, without limitation, sprinkler leakage legal liability (if a sprinkler is or shall be located in the Facilities), motor vehicle liability for all owned and non-owned vehicles, including rented and leased vehicles, and contractual indemnification; and (v) such other insurance in such amounts as may from time to time be required by the Trustees or the Beneficiaries against such other insurable hazards as at the time are commonly insured against in the case of properties similar to the Facilities and located in the vicinity of the Facilities or operations similar to the operations conducted at the Facilities. All insurance provided hereunder shall be in such form and in such amounts (including deductibles) as from time to time shall be acceptable to the Required Holders and otherwise shall be acceptable to the Required Holders in their sole discretion. Anything contained herein to the contrary notwithstanding, in no event shall the insurance provided under clause (i) (A) or clause (ii) of this Section 3.8(a) be in an amount which is less than the full replacement cost of -------------- the Facilities, including the cost of debris removal, but excluding the value of foundations and excavations, as determined from time to time by the Required Holders. The Company hereby assigns to the Trustees all such policies of insurance, or duplicate originals thereof, and will deliver the same (or a certificate of insurance evidencing the same) to the Trustees. (b) All insurance provided hereunder shall name the Trustees and the Beneficiaries as named insureds under a standard "non-contributory mortgagee" endorsement or its equivalent, which shall be acceptable to the Indenture Trustee, and shall provide for loss payable to the Indenture Trustee. Every policy of insurance referred to in this Section 3.8 shall contain an agreement ----------- by the insurer that it will not cancel such policy except after 30 days prior written notice to the Trustees and the Beneficiaries. (c) All insurance proceeds with respect to the FacilitieS Shall be paid to the Indenture Trustee, and the Trustees and the Beneficiaries are hereby authorized to adjust, collect and compromise, in their sole discretion, all claims under all insurance policies and to execute and deliver on behalf of the Company all necessary proofs of loss, receipts, vouchers and releases required by the insurers. The Company agrees to execute, upon demand by the Trustees or any Beneficiary, all such proofs of loss, receipts, vouchers and releases and to cooperate with the -23- Trustees and the Beneficiaries in connection therewith. Each insurer is hereby authorized and directed to make payment of any proceeds under any policies of insurance, including the return of unearned premiums, directly to the Indenture Trustee instead of to the Company and the Indenture Trustee jointly, and the Indenture Trustee is hereby authorized to endorse any draft therefor as the Company's attorney-in-fact. (d) The Company will not take out any separate insurance concurrent in form or contributing in the event of loss with that required to be maintained under Section 3.8(a). -------------- (e) The Company will, concurrently with the execution and delivery hereof, deliver or cause to be delivered to the Indenture Trustee duplicate original copies of all policies of insurance (or certificates evidencing the same) as may be required pursuant hereto to be maintained or to be caused to be maintained by the Company. Thereafter, within 10 days of the issuance of any additional policies or amendments or supplements to any of such policies, the Company will deliver or cause to be delivered duplicate original copies of the same (or certificates evidencing the same) to the Indenture Trustee. If insurance is maintained under blanket policies, additional policies, amendments and supplements will be delivered only to the extent that they relate to coverage allocable to the Facilities. Promptly following its receipt thereof, the Indenture Trustee shall forward to each Registered Owner a copy of each such policy or certificate. (f) The Company will (i) pay as they become due all premiums for the insurance required under this Section 3.8, and (ii) not later than 10 days prior ----------- to the expiration of each such policy, deliver a binder evidencing a renewal policy and within 30 days after such renewal deliver a duplicate original of the renewal policy or a certificate of insurance certified to the Indenture Trustee by the insurer evidencing the insurance required to be provided hereunder, marked "premium paid", or accompanied by such other evidence of payment as shall be satisfactory to the Indenture Trustee in its sole discretion. Section 3.9. Existence; Governmental Requirements, etc. (a) The Company ------------------------------------------ will at all times maintain, and will cause each Subsidiary at all times to maintain, its corporate existence, material rights, (charter and statutory) and keep in full force and effect all of its franchises, rights, permits, licenses and consents as may be required by any Governmental Body for the conduct of its business and the ownership, leasing, mortgaging and encumbering of the Mortgaged Property. Unless required by applicable law or unless the Required Holders or the Trustees have otherwise first agreed in writing, the Company will not make or allow any changes to be made in the nature of the currently contemplated occupancy or use of any Facility or any portion thereof. The Company will not initiate or acquiesce in any change -24- in any zoning or other land use classification now or hereafter in effect and affecting any Facility or any part thereof without in each case obtaining the prior written consent of the Required Holders or the Trustees thereto. (b) The Company will comply with or cause to be complied with, and will cause each Subsidiary to comply with, (i) every law or other legal requirement or Order of the United States or any other Governmental Body applicable to the Mortgaged Property, to the property used in the business of such Subsidiary, to the Company or to such Subsidiary, as the case may be, and (ii) every contract, agreement or other instrument applicable to the Mortgaged Property or the ownership, occupancy or use of any Facility or to the Company or such Subsidiary, as the case may be, in effect at the date of delivery hereof or to which the Company or such Subsidiary, as the case may be, is a party or has given its consent. Notwithstanding the foregoing, the Company shall have the right diligently to contest any requirement of any Governmental Body so long as (A) the contest is in good faith and by appropriate proceedings, (B) such contest Shall operate to suspend the collection of any disputed amount from the Facilities or the Mortgaged Property, and (C) such contest will not (i) subject any of the Mortgaged Property or any part thereof to loss, forfeiture or sale, (ii) adversely affect the lien of this Indenture thereon, (iii) interfere with the possession, use or occupancy of the Facilities, (iv) interfere with the due and punctual payment by the Company as provided in the Notes and this Indenture of any amount payable hereunder or thereunder or (v) Subject the Trustee or any of the Beneficiaries to any civil or criminal liability. (c) The Company will promptly notify each Trustee and beneficiary in writing in the event that the Company or any of its Subsidiaries receives any notice, claim or demand from any governmental Body which alleges that the Company or any of its Subsidiaries is or may be in violation of any law or other legal requirement or order of the United States or any other Governmental Body, the result of which might have a material adverse effect on the Company or any of its Subsidiaries. Section 3.10. Continuing Priority. The Company and each Guarantor will: ------------------- (a) pay such fees, taxes and charges, execute and file (at the Company's expense) such financing statements, obtain such acknowledgements or consents, notify such obligors or providers of services and materials and do all such other acts and things as the Trustees may from time to time request or as may be required by law to establish and maintain a valid and perfected first priority lien on and security interest in the Mortgaged Property (subject to the Intercreditor Agreement) subject only to Permitted Liens; (b) maintain its chief executive office and principal place of business at all times at the address shown above or give the Trustee 30 days, prior written notice of any change in address of such chief executive office and principal place of -25- business; and (c) keep all of its books and records relating to the Mortgaged Property at the respective Facilities or at the address so furnished to the Trustees. Neither the Company nor the Guarantors will change its name without having given the Trustee 60 days, prior written notice and without having delivered to the Trustee all additional agreements, financing statements, instruments or other documents which in the reasonable judgment of the Trustees are necessary to maintain such valid and perfected first priority lien and security interest (subject to the Intercreditor Agreement). Section 3.11. After-acquired Property. The Company agrees that all ----------------------- right, title and interest of the Company in and to all improvements, alterations, substitutions, restorations and replacements of, and all additions and appurtenances to, any Facility, hereafter acquired by or released to the Company, immediately upon Such acquisition or release and without any further Granting by the Company Shall become part of the applicable Facility and the Mortgaged Property and shall be Subject to the lien of this Indenture fully, completely and with the Same effect as though now owned by the Company and specifically described in the Granting Clauses; and the Company will execute ---------------- and deliver to the Trustees any further assurances, mortgages, grants, conveyances or assignments thereof as the Trustees or any Registered Owner may reasonably require tO Subject the same to the lien of this Indenture. Section 3.12. Sale, Demolition of Mortgaged Property. The Company and -------------------------------------- Guarantors will not (a) sell, contract to sell, lease, convey, alienate, transfer or otherwise dispose of all or any portion of the Mortgaged Property or any interest therein, whether voluntarily or involuntarily, by operation of law or otherwise, except as permitted by Section 3.25, Section 4.2 and Section 4.6 (and any attempted ------------- ----------- ----------- transfer or disposition without such consent shall be void). (b) demolish or materially alter any Improvements, except for demolitions or alterations of Improvements having a value individually or in the aggregate of less than $100,000. Section 3.13 Performance by Trustees. If the Company or either Guarantor ----------------------- fails to pay or perform any of its obligations herein contained (including payment of expenses of foreclosure and court costs), the Trustees may (but need not), as agent or attorney-in-fact of the Company and Guarantors (upon ten days, notice to the Company or Guarantor, as the case may be, or without any such notice if such failure relates to the obligation to maintain insurance as provided in Section 3.8 or shall (i) subject the Mortgaged Property, or any part ----------- thereof, to any risk of loss, -26- forfeiture or sale, or (ii) subject the Trustees or any Beneficiary to any civil or criminal liability), make any payment or perform (or cause to be performed) any obligation of the Company or Guarantors hereunder, in any form and manner deemed expedient by the Trustees, and any amount so paid or expended (plus reasonable compensation to the Trustees for their out-of-pocket and other expenses for each matter for which they act under this Indenture), with interest thereon at the Overdue Rate, shall be added to the principal debt hereby secured and shall be repaid to the Trustees upon demand. By way of illustration and not in limitation of the foregoing, the Trustees may (but need not) do all or any of the following: make payments or principal of interest or other amounts on any lien, encumbrance or charge on any of the Mortgaged Property; make repairs; collect rents; prosecute collection of the Mortgaged Property or proceeds thereof; purchase, discharge, compromise or settle any tax lien or any other lien, encumbrance, suit, proceeding, title or claim thereof; contest any tax or assessment; and redeem from any tax sale or forfeiture affecting any Facility. In making any payment or Securing any performance relating to any obligation of the Company hereunder, the Trustees shall be the sole judge of the legality, validity and amount of any lien or encumbrance and of all other matters necessary to be determined in satisfaction thereof. No such action of the Trustees shall ever be considered as a waiver of any right accruing to it on account of the occurrence of any matter which constitutes a Default or an Event of Default. Section 3.14 Subrogation; Purchase Money Liens. To the extent that the --------------------------------- Trustees pay any sum under any provision of law or any instrument or document creating any Lien or other interest prior or superior to the lien of this Indenture, or the Company or any other Person pays any Such sum with the proceeds of the issuance of the Notes secured hereby, then, to the extent permitted by law, the Trustees shall have and be entitled to a Lien or other interest on the Mortgaged Property equal in priority to the Lien or other interest discharged and the Trustees shall be subrogated to, and receive and enjoy all rights and Liens possessed, held or enjoyed by, the holder of such Lien, which shall remain in existence and benefit the Trustees in securing the obligations. Section 3. 15 Compensation of Trustees. The Company will promptly pay or ------------------------ cause to be paid the compensation to which the Trustees are entitled hereunder and all proper disbursements and expenses incurred by them hereunder (including without limitation all reasonable attorneys fees and disbursements). Section 3.16 Maintenance of Character of Business. The Company and its ------------------------------------ Subsidiaries will continue to carry on substantially the same type of business carried on during the fiscal year ended December 31, 1993 and activities which are ancillary, incidental or necessary to the ongoing business of the Company and -27- its present and future Subsidiaries and Affiliates as presently conducted or as conducted from time to time. Section 3.17. Condemnation. The Company and BOD, immediately upon ------------ obtaining actual knowledge of (i) any proceedings for the taking of any Facility or any part thereof in condemnation or other eminent domain proceeding or (ii) any threat of institution of any such proceeding, shall notify the Trustees and each Registered Owner of a Note of the pendency thereof. The Trustees may participate in such proceeding or in the negotiations arising by reason of the threat of such proceeding, and the Company will deliver all instruments reasonably requested by the Trustees to permit such participation. Neither the Company nor BOD will settle or compromise any such claim without the prior written consent of the Trustees. Any award or compensation payable in such proceedings to the Company is hereby assigned to the Trustees, and shall be payable as provided in Article 5 hereof. The Trustees shall be under no --------- obligation to question the amount of the award or compensation and may accept the same. In any such proceeding the Trustees may be represented by counsel satisfactory to them at the expense of the Mortgaged Property. Any award or compensation payable to the Trustees pursuant to this Indenture shall be applied pursuant to Article 5. --------- Section 3.18. Environmental Protection. (a) The Company and its ------------------------ Subsidiaries will not take any of the following actions (unless such action is taken in the ordinary course of business as con conducted on the Closing Date and unless such action individually or when aggregated with other such actions then or theretofore taken or proposed will not have a material adverse effect on the financial condition, business, properties or prospects of the Company or the Company and its Subsidiaries taken as a whole): (i) cause or suffer to occur a Release at, upon, under or within any of the Facilities or any contiguous real estate, (ii) be involved in operations at the Facilities which could lead to the imposition on the Company or any other owner of the Facilities of liability or the creation of a Lien on the Facilities under any Environmental Law, and (iii) permit any tenant or occupant of the Facilities to engage in any activity that could lead to the imposition of liability on such tenant or occupant, the Company or any other owner of any of the facilities, or the creation of a Lien on the Facilities, under any Environmental Law. Provided, however, that the foregoing shall not prohibit the Company or its Subsidiaries or tenants from handling Hazardous Materials in minor quantities in the ordinary course of business. (b) The Sites will not at any time prior to the payment of the entire Obligations contain any underground or aboveground tanks for the storage of fuel oil, gasoline and/or other petroleum products or byproducts. -28- (c) The Company and its Subsidiaries will comply in all material respects with the requirements of all Environmental Laws and related regulations and shall notify the Trustees and the Beneficiaries immediately in the event of any Release, discovery of any Hazardous Material at, upon, under, within or contiguous to, any of the Facilities, or receipt by the Company of any Environmental Claim. The Company promptly will forward to the Trustees and the Beneficiaries copies of all Environmental Claims and all other orders, notices, permits, applications or other communications and reports in connection with any Release or the presence of any Hazardous Material or any other matters relating to Environmental Laws as they may affect any of the Facilities. If the Company or any of its Subsidiaries shall fail to comply with any Environmental Law, the Trustees or the Beneficiaries, may at their election, but without the obligation so to do, give such notices and/or cause such work to be performed at the Facilities and/or take any and all other actions as the Trustees or the Beneficiaries shall deem necessary or advisable in order to remedy any Release or cure said failure of compliance. (d) The Company at all times will indemnify, defend and hold harmless the Trustees and the Beneficiaries and each of their respective officers, directors, employees and agents against and from any and all claims, suits, actions, debts, damages, costs, losses ' obligations, judgments, charges, and expenses (including without limitation reasonable attorneys fees and disbursements), of every nature whatsoever suffered or incurred by the Trustees or the Beneficiaries, including without limitation, all Environmental Claims resulting from, arising out of or incurred with respect to the Mortgaged Properties, whether as lenders, mortgagees, mortgagees in possession or successors in interest to the Company by foreclosure of deed in lieu of foreclosure, under or on account of any Hazardous Material or the Environmental Laws or any similar laws or regulations, including the assertion of any lien thereunder or otherwise. The Company also agrees to reimburse the Trustees and the Beneficiaries for any costs and expenses incurred by the Trustees or the Beneficiaries that arise directly or indirectly from or in connection with the presence, suspected presence, Release or suspected Release of any Hazardous Material in or into the air, soil, groundwater or surface water at, on, about, under or within the Mortgaged Properties or any of the Facilities, or any portion thereof, or elsewhere in connection with the transportation of Hazardous Materials to or from the Mortgaged Properties or Facilities or any portion thereof. Without limiting the generality of the foregoing, the indemnification provided by this Subsection shall specifically include capital, operating and maintenance costs, incurred in connection with any investigation or monitoring of site conditions, any clean-up, containment, remedial, removal or restoration work required or performed by an Governmental Body or performed by an nongovernmental entity or person because of the presence, suspected -29- presence, Release or suspected Release of any Hazardous Materials in or into the air, soil, groundwater or surface water at, on, about, under or within the Mortgaged Properties or Facilities, or elsewhere in connection with the transportation of Hazardous Materials to or from the Mortgaged Properties or Facilities, and any claims of their parties for loss or damage due to such Hazardous Materials. Section 3.19. Keep Books, Reserves: Payment of Taxes; Compliance with ------------------------------------------------------- Laws; Corporate Existence; Maintenance of Properties, Insurance. Without ---------------------------------------------------------------- limiting the other obligations of the Company under this Article 3 with respect --------- to the Mortgaged Property, the Company will, and will cause each of its Subsidiaries to, (a) keep proper books of record and account, and keep appropriate reserves, all in accordance with GAAP; (b) pay and discharge or cause to be paid and discharged all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or upon any of its property, real, personal or mixed, or upon any part thereof, when due, as well as all lawful claims for labor, materials and supplies which, if unpaid, might by law become a Lien upon its property, provided, however, that neither the Company nor any Subsidiary shall be required to pay any such tax, assessment, charge, levy or claim if the amount, applicability or validity thereof shall be contested on a timely basis in good faith by appropriate proceedings (provided that the enforcement of any Lien arising out of such nonpayment shall be stayed during the proceedings) and if appropriate provision, if any, as shall be required by GAAP shall have been made therefor; (c) in addition to the requirements contained in Section 3.9, obtain, ----------- comply in all material respects, preserve and keep in full force and effect all permits, licenses and consents as may be required by any Governmental Body for the conduct of its business and the ownership and leasing of its properties and comply with or cause to be complied with every law or other legal requirement or Order of the United States or any other Governmental Body in respect to the conduct of its business and the ownership and leasing of its properties (including without limitation applicable Environmental Laws and statutes, and Orders relating to equal employment opportunities); (d) in addition to the requirements contained in Section 3.9 and subject ----------- to Section 3.25, do or cause to be done all things necessary to maintain its ------------ corporate existence and material rights (charter and statutory) and keep in full force and effect all of its franchises and rights; -30- (e) in addition to the requirements contained in Section 3.5, maintain and ----------- operate, or cause to be maintained and operated, its properties in good repair, working order and condition, ordinary wear and tear excepted; and (f) in addition to the requirements contained in Section 3.8, maintain or ----------- cause to be maintained with financially sound and reputable insurers, insurance with respect to its respective properties and business against loss or damage of the kinds customarily insured against by entities of established reputation engaged in the same or similar business and similarly situated, and in such amounts (and with such deductibles) as are customarily carried under similar circumstances by such other entities in accordance with good business practice; provided, however, that nothing contained in this Subsection shall prevent the Company from maintaining a system of self-insurance in such amount as such insurance is customarily carried by such entities in accordance with good business practice. Section 3.20. Transactions With Affiliates. The Company will not, and will ---------------------------- not permit any Subsidiary to, directly or indirectly, enter into any transaction, whether or not in the ordinary course of business, with any Affiliate of the Company or any Affiliate of its Subsidiaries other than on terms and conditions at least as favorable to the Company (or the Subsidiary) as those that would be obtained through an arm's length negotiation with an unaffiliated third party. Section 3.21. Limitations on Current Indebtedness. The Company will not ----------------------------------- have any Consolidated Current Indebtedness except that the Company may incur Consolidated Current Indebtedness if during every period of twelve (12) consecutive calendar months after issuance of the Notes there is a period of at least 45 consecutive days during which Consolidated Current Indebtedness does not exceed $1,500,000. In the event Consolidated Current Indebtedness is not reduced to $1,500,000 or less during any such period of twelve consecutive months, then a determination shall be made as to the date during such twelve month period upon which the amount of Consolidated Current Indebtedness was least, and a period of 45 days thereafter within such period of twelve consecutive months (and, if an insufficient number of days remains in such twelve-month period, then the balance of the 45 days shall be measured prior to the date at which Consolidated Current Indebtedness is least) shall be determined. The maximum,m amount outstanding during such 45 day period by which Consolidated Current Indebtedness exceeds $1,500,000 Shall be considered Funded Debt for such 45-day period for purposes of the Funded Debt limitations set forth below. -31- Section 3.22. Limitations on Funded Debt. The Company and its Subsidiaries -------------------------- will not incur, assume, or in any manner become liable with respect to any Funded Debt except the following: (a) the Notes; (b) Funded Debt outstanding at the date of Closing; (c) additional Funded Debt provided that immediately after giving effect to the amount of Funded Debt proposed to be created, incurred or assumed and to the application of proceeds thereof required under the terms on which it is created, incurred or assumed, (x) the total pro forma Funded Debt of the Company and its Subsidiaries on a consolidated basis does not exceed 65% of Consolidated Total Capitalization; and (y) the Company's pro forma Consolidated Fixed Charges Coverage Ratio for the twelve month period ending with the Company's most recently completed fiscal quarter would not have been less than 2.00:1.0 prior to February 23, 1995; 2.25:1.0 prior to February 23, 1997; and 2.50:1.0 thereafter. (d) Funded Debt of any Subsidiary owing to the Company or another Subsidiary; (e) other Funded Debt of any Subsidiary, provided that after giving effect thereto, the aggregate Funded Debt of all Subsidiaries plus liens permitted under subsection (f) of Section 3.26 does not exceed 10% of total assets; ------------ and (f) all renewals, extensions, substitutions, refinancings or replacements, in an amount not to exceed the amount so refinanced, of any Funded Debt. Section 3.23. Maintenance of Net Worth. The Company will at all times ------------------------ maintain a Consolidated Net Worth of at least 80% of existing Net Worth as of the most recently completed fiscal quarter prior to Closing. Section 3.24. Dividends. The Company will not (a) declare or pay any --------- dividends (other than dividends payable in shares of its own stock); or (b) make any distribution on any shares of any class of its own stock; or (c) redeem, retire, purchase or otherwise acquire for value any shares of any class of its own stock otherwise than by the issuance of stock of the Company (i) in exchange therefor or (ii) the proceeds from the sale of which will be used for the redemption or other acquisition of the stock of the Company, if, as a result, the sum of (x) the total of all such dividends and payments made after December 31, 1993, and (y) the amount of Investments (other than Investments described in Subsections (a) through (g) of Section 3.27 below) of the ------------ -32- Company and its Subsidiaries existing at the time of such declaration or payment will exceed the sum of (a) $1,000,000, (b) 50% (minus 100% of any deficit) of Consolidated Net Income accrued on a cumulative basis after December 31, 1993, and (c) the aggregate amount of proceeds received by the Company from the issuance or sale of its capital stock Subsequent to December 31, 1993; and provided further the Company would be able to incur at least $1.00 of additional Debt and no Event of Default would exist before or after giving effect to Such payment. Section 3.25. Restrictions on Merger and Sale of Assets. The Company and ----------------------------------------- Guarantors may not enter into any transaction or merger or consolidation with any other corporation, except that: (a) any Subsidiary may merge with the Company (provided that the Company shall be the surviving corporation) or with any one or more other Subsidiary; and (b) any Subsidiary may sell, lease, transfer or otherwise dispose of its assets to the Company or any other Subsidiary. (c) the Company may merge or consolidate with any other corporation or sell all or substantially all of its assets provided that: (i) the continuing or the surviving entity or the Person to which such assets are transferred expressly assumes the punctual payment of the Notes and observance of all the covenants of the Notes; (ii) the continuing or surviving entity or the Person to which such assets are transferred shall be incorporated in the United States; (iii) an Event of Default with regard to the surviving entity or the Person to which such assets have been transferred shall not immediately after such merger have occurred and be continuing on the Notes; and (iv) the surviving entity or Person to which such assets have been transferred could incur at least $1.00 of additional Debt. Other than for the sale of the Vacaville Facility, as provided in this Indenture, the Company will not and will not permit its Subsidiaries to sell, lease, transfer or otherwise dispose of a Substantial Part of the assets of the Company or its Subsidiaries unless the proceeds from the sale of such assets are invested in capital assets used, or to be used, by the Company and its Subsidiaries in the lines of business or related business in which the Company and its Subsidiaries are engaged at the date of Closing, (including the ongoing development and sale of Company-owned stores and real estate to franchises) within the succeeding twelve-month period. With respect to the sale of the Vacaville Facility, to the extent there is any outstanding mortgage financing on the Las Vegas Facility, the proceeds from the sale of the -33- Vacaville Facility must be used to reduce any Lien Debt (other than under the Notes) on the Las Vegas Facility. Section 3.26. Limitations on Liens. Neither the Company nor any Subsidiary -------------------- will create, incur, or assume any pledge, mortgage, lien, encumbrance or security interest of any kind upon any of its property or assets owned or hereafter acquired other than those provided pursuant to the Notes and except (i) the security interest held by Barclay's in the Company's and Guarantor's property, including, but not limited to, inventory, accounts and general intangibles, and (ii) the construction financing for the Las Vegas Facility, except: (a) presently outstanding Liens and encumbrances (other than those described above); (b) deposits or pledges in connection with or to secure payment of workers I compensation, unemployment insurance, old-age pensions or other social security, or in connection with the good faith contest of any,tax lien; (c) current taxes not delinquent or being contested in good faith in such manner as not to make the property forfeitable, mechanics, liens or landlords, liens for sums not due and owing or making the property subject to such liens forfeitable, liens of judgment or awards, rights of way and like encumbrances or title defects which do not interfere materially with the business operations of the Company; (d) security interest in or mortgage or Capitalized Lease Obligation on (collectively a "Purchase Money Lien") any property acquired or improved by the Company or a Subsidiary and created within twelve months of such acquisition or improvement to secure borrowings made to finance the purchase or improvement of such property provided that at the time it is created such Purchase Money Lien extends only to the property acquired or improved and that the aggregate principal amount of indebtedness secured by such Purchase Money Lien and all other indebtedness secured by a security interest in or mortgage on such property or such improvement does not exceed in the aggregate 80% (or 100% in the case of a Capitalized Lease Obligation) of the lesser of (i) the cost of such property or improvement or (ii) the fair market value thereof at the time of incurrence; (e) minor Liens incidental to the conduct of the business of the Company or its Subsidiaries which were not incurred in connection with the borrowing of money or the obtaining of advances or credits, and which do not in the aggregate materially detract from the value of its -34- property or assets or materially impair the use thereof in the operation of its business; and (f) other Liens not expressly permitted by Subsections (a) through (e) above, provided that (x) in the aggregate, such Liens plus all Liens permitted under (a) above plus Debt of all Subsidiaries incurred under Section (e) of Section 3.22 above does not exceed 10% of total assets, and (y) the Company ------------ would be able to incur at least $1.00 of additional Debt. Section 3.27. Restricted Investments. The Company and its Subsidiaries ---------------------- shall not make any Investments in any Persons (including stock purchases, capital contributions and advances, loans, guarantees and other extensions of credit) other than in the ordinary course of business except as permitted under the Investment Policy Number 6.1.2 of the Company dated September 1, 1993 and effective August 16, 1993, Revision 02, a copy of which has been delivered to the Trustees and the Beneficiaries. ARTICLE 4 POSSESSION, USE AND RELEASE OF MORTGAGED PROPERTY Section 4.1. Possession and Use of Mortgaged Property. Unless and until an ---------------------------------------- Event of Default shall have occurred and be continuing, the Company and the Guarantors shall be permitted to possess, use and enjoy all the Mortgaged Property and receive and use the rents, revenues, issues, income, products, profits and proceeds thereof, with power in the ordinary course of business, freely and without hindrance on the part of the Trustees or any of the Registered Owners of the Notes and without any release from or consent of the Trustees or any of the Registered Owners of the Notes: (a) to use and consume materials and supplies comprising part of the Equipment, and (b) to enter into, alter, amend, supplement, cancel and otherwise deal with choses in action, contracts, agreements, permits, licenses and other instruments comprising part of or affecting the use of the Mortgaged Property and to exercise the rights and powers conferred upon the Company and the Guarantors thereby, provided that such action (i) is in the best interest of the Company and (ii) is not materially prejudicial to the interests of the Registered Owners of the Notes. Section 4.2. Dispositions of Equipment. Except as permitted by ------------------------- Section 3.25, the Company and the Guarantors will not, ------------ -35- and will not purport to, sell, assign, lease, transfer or dispose of any of the Equipment, except that, unless and until an Event of Default shall have occurred and be continuing, the Company and the Guarantors shall have the right at any time and from time to time, freely and without hindrance on the part of the Trustees or any of the Registered Owners of the Notes and without any release from or consent of the Trustees or any of the Registered Owners of the Notes, to demolish, dismantle, tear down, scrap, abandon, surrender, sell or otherwise dispose of, free from the lien of this Indenture, Equipment which has become worn out, obsolete, unserviceable, unfit, unprofitable or unnecessary for use in the conduct of the business of the Company and the Guarantors, provided that such Equipment shall be replaced by other Equipment in at last as good operating condition as, and having a value and utility at least equal to, the Equipment replaced, assuming such replaced Equipment was in the condition and repair required to be maintained by the terms hereof. All replacement Equipment shall be free and clear of all Liens except the Permitted Liens. Section 4.3. Confirmatory Instruments. The Trustees shall, from time to ------------------------- time, execute any release or other written instrument to confirm any action taken or to be taken by the Company or the Guarantors under Section 4.1 or 4.2 ----------- --- upon receipt by the Trustees of a request from the Company for the same together with a certificate of an officer of the Company stating that the action so to be confirmed was duly taken or is to be duly taken in conformity with Section 4.1 ----------- or 4.2. --- Section 4.4. Purchaser Protected. No purchaser in good faith of property ------------------- purporting to be released herefrom shall be bound to ascertain the authority of the Trustees to execute the release or to inquire as to the existence of any condition herein provided for the exercise of such authority; nor shall any purchaser or grantee of any property of rights permitted by this Article 4 to be --------- sold, granted, exchanged or otherwise disposed of by the Company or a Guarantor, be under any obligation to ascertain or inquire into the authority of the Company to make any Such sale, grant, exchange or other disposition. Any release executed by the Trustees shall be sufficient for the purpose of this Indenture and shall constitute a good and valid release of the property therein described from the lien of this Indenture to the extent provided in such release. Section 4.5. Lien on Remaining Mortgaged Property. No release of any part ------------------------------------ of the Mortgaged Property shall in any way alter, vary or diminish the lien of this Indenture on the remainder of the Mortgaged Property. Section 4.6. Release of Vacaville Facility and Recording of Indenture. It --------------------------------------------------------- is understood and acknowledged that Company is in the process of constructing the Las Vegas Facility, with the anticipated completion date of December 15, 1994. It is the -36- intention of the Company to consolidate the Company's operations presently being undertaken at the Vacaville Facility at the Las Vegas Facility, and to sell or otherwise dispose of the Vacaville Facility. The Trustees agree to release the Vacaville Facility from the lien of this Indenture upon satisfaction of the Trustees and the Registered Owners that the Las Vegas Facility has been made subject to this Indenture and has become a part of the Mortgaged Property and that all of the covenants, representations and warranties of this Indenture and the Note Purchase Agreement are true and correct and apply fully to the Las Vegas Facility including, but not limited to, establishment of a first priority mortgage lien thereon in favor of the Trustees (and provided there shall be no other consensual liens or liens arising out of the construction of the Improvements) and receipt of appraisals, surveys, and title policies as to such Las Vegas Facility in accordance with this Indenture and the Note Purchase Agreement. Provided, that in the event the Las Vegas Facility has not been completed at the time of the Closing of the sale of the Vacaville Facility and therefore this Indenture will not constitute a first mortgage lien thereon due to the lien of construction financing, the Trustees agree to release the Vacaville Facility from the lien of this Indenture upon receipt by the Trustees of the proceeds Of such sale in the escrow account established in Section 5.4 of this Indenture. Notwithstanding the provisions of Section 3.3 this Indenture will not be ----------- recorded in Clark County, Nevada except in accordance with this Section 4.6. ----------- Concurrently with and as a condition precedent to any release of the Vacaville Facility, or of the proceeds thereof placed in escrow in accordance with the foregoing if the Las Vegas Facility was not completed at the time of the sale of the Vacaville Facility, as the case may be, Company shall and effective as of such time does hereby declare the Las Vegas Facility to be and become Mortgaged Property hereunder and Grants to the Trustees the Las Vegas Facility, and the provisions of Section 3.11 shall be applicable to the Las ------------ Vegas Facility as, but not limited to, after acquired property, and this Indenture shall be recorded in Clark County, Nevada, with the County Recorder. In addition, and as a further condition precedent to such a release, Trustees shall receive an opinion of Nevada counsel similar to the opinions described in Section 4.G. of the Note Purchase Agreement. -37- ARTICLE 5 APPLICATION OF MONEYS Section 5.1. Proceeds of Insurance and Condemnation Awards; Restoration. ----------------------------------------------------------- (a) Moneys received by the Trustees as payment for casualty loss (excluding inventory insurance and business interruption insurance and similar coverage not intended to compensate for the property loss) under any policy of insurance or as an award or compensation for the taking, in condemnation or other eminent domain proceedings, of any Facility or any part thereof or interest therein, shall (i) at the election of the Required Holders in their sole discretion (or if such amount is less than $250,000, at the election of the Company), either be (A) paid over or assigned either in their entirety or in a lesser amount (the balance to be applied in accordance with the following clause (B) of this Section 5.1(a)(i)) to the Company for Restoration (as defined below) of the ----------------- affected Facility in accordance with Section 5.1(b) (after deduction -------------- therefrom all costs and expenses, including without limitation attorneys' fees, costs and disbursements, incurred by the Trustees and the Beneficiaries in connection with the collection thereof), provided no Default or Event of Default shall have occurred and be continuing, or (B) applied on the next succeeding principal and interest payment date for the Notes, but after the regular payment of the interest and prepayment of principal, if any, due and payable on such date, first, to the prepayment of the Notes pursuant to Section 6.2 and second, ----- ----------- ------ the excess, if any, shall be paid over or assigned, if no Default or Event or Default shall have occurred and be continuing, to the Company or upon its written order, or (ii) if such amount is less than $100,000 and no Default or Event of Default shall have occurred and be continuing, be paid over or assigned to the Company for Restoration of the affected Facility in accordance with Section 5.1(b). -------------- (b) If any Facility or any portion thereof becomes damaged, destroyed or injured by fire or other casualty (whether insured or uninsured) or is the subject of a taking, in condemnation or other eminent domain proceedings, the Company will give immediate notice thereof to the Trustees and the Beneficiaries and, provided that the Required Holders shall have elected to apply the proceeds of the insurance paid with respect thereto (if any), or the award with respect to such taking to the Company toward the restoration of the Facility in accordance with the provisions of Section 5.1(a)(i), or if the amount thereof is ----------------- less than $100,000 and, pursuant to Section 5.1(a)(ii), is paid to the Company, ------------------ then the Company promptly will commence and diligently will continue and complete the repair, restoration, replacement or rebuilding ("Restoration") of such Facility or portion thereof so damaged, destroyed, injured or taken substantially to its value, condition and character immediately prior to such damage, destruction, injury or taking, in accordance with plans and specifications (bearing the -38- signed approval of an architect Satisfactory to the Required Holders) which shall have been approved by the Required Holders prior to the commencement of such Restoration. The Company diligently will complete, and pay for the cost of, the Restoration of the Facility located on the Site which is at any time in the process of construction, alteration or Restoration. Notwithstanding any damage to, or destruction of, or injury to, a Facility or any portion thereof by fire or other casualty or any taking of any Facility, the Company will continue to make all payments due under the Notes, this Indenture and the other Operative Documents in accordance with their respective terms. Any insurance proceeds or condemnation awards remaining after completion of such Restoration shall be retained by the Trustees and shall be applied to the payment of the Obligations in accordance with Section 5.1(a)(i)(B). -------------------- Section 5.2. Moneys Held as Mortgaged Property. Moneys held by the Trustees --------------------------------- pursuant to any provision of this Indenture (other than the Escrow), shall, at the election of the Required Holders, be applied to the cure of any Default or Event of Default or be held as part of the Mortgaged Property as a special deposit in trust as held pending application thereof in accordance with the other provisions of this Article 5. Such moneys held by the Trustees shall be --------- invested in short term (90 days maturity or less) United States Treasury obligations, with interest thereon paid to the Company. Section 5.3. Proceeds During Default. Any amounts retained by the Trustees ----------------------- pursuant to any provision of this Indenture due to the existence of a Default or an Event of Default shall be held as provided in Section 5.2, and upon the ----------- occurrence of an Event of Default, may be applied in payment of any amount then due and owing under this Indenture. Section 5.4. Escrow. There is hereby established a special escrow fund and ------ account to be held and administered by the Trustees in accordance with this Section (the "Escrow"). The Escrow shall be comprised of (i) the proceeds from the sale of the Notes pursuant to the Note Purchase Agreement to the extent such proceeds have not been used to satisfy the indebtedness against the Vacaville Facility and the Boise Facility, and (ii) the proceeds of the sale of the Vacaville Facility as provided in Section 4.6 of this Indenture. The Trustees shall remit to the holders of Liens against the Vacaville Facility and the Boise Facility, as of the Closing Date, such of the proceeds from the sale of the Notes as shall be necessary to satisfy and discharge such Liens, and shall disburse to persons designated by the Company (or to the Company) costs of this transaction not to exceed an aggregate of $300,000. The Escrow shall be held by the Trustees in a segregated account which shall be invested in United States Treasury obligations and/or money market funds which invest solely in United -39- States Treasury obligations as the Trustees shall be directed in writing by the Company. All earnings on the Escrow shall be paid to and shall be the sole property of the Company. At such time as the construction of the Las Vegas Facility has been completed and this Indenture has been insured as a first mortgage lien thereon, and the other conditions described in Section 4.6 have been satisfied with respect to the Las Vegas Facility, the Escrow shall be closed and any remaining funds held therein shall be distributed to the Company. Provided, however, that the funds in the Escrow may be applied directly to the payment and satisfaction of any prior or paramount Liens against the Las Vegas Facility for the purpose of assuring the first mortgage lien of this Indenture thereon. Until the release of such funds and the close of the Escrow the funds and the Escrow are assigned by the Company to the Trustees, and the Trustees are granted a security interest therein, to further secure the performance by the Company of the Obligations. ARTICLE 6 PREPAYMENT OF NOTES Section 6.1. Mandatory Prepayments of Notes. On August 1, 1998 and on the ------------------------------ first day of each third month thereafter to and including May 1, 2004 (so long as any of the Notes shall be Outstanding), the Company will prepay $333,333.33 aggregate principal amount of the Notes (or, if less, the unpaid balance thereof), in each case at the principal amount so to be prepaid, together with accrued interest thereon to the date of such prepayment, without premium, and allocated as provided in Section 6.4. No partial prepayment of Notes pursuant to ----------- Section 6.2 shall relieve the Company to any extent from its obligation to make ----------- mandatory prepayments pursuant to this Section 6.1 so long as any Notes shall ----------- remain Outstanding. Section 6.2. Optional Prepayment of Notes. Upon notice given as provided ---------------------------- in Section 6.3, the Company may at any time prepay the Notes as a whole, or from ----------- time to time in part (in a minimum amount of $500,000 and otherwise in multiples of $100,000), in each case at the principal amount so to be prepaid, together with interest accrued thereon to the date fixed for such prepayment, plus an amount equal to the Makewhole Premium Amount for each such Note. Section 6.3. Notice of Prepayment; Makewhole Computations. The Company -------------------------------------------- shall call Notes for prepayment pursuant to Section 6.2 by giving written ----------- notice thereof to the Indenture Trustee and to each Registered Owner of a Note which notice shall be given not less than 30 nor more than 60 days prior to the date fixed for such prepayment, shall specify the principal amount so -40- to be prepaid and the date fixed for such prepayment. Notice of prepayment having been so given, the aggregate principal amount of the Notes so to be prepaid as specified in such notice, together with interest accrued thereon to the date of such prepayment, plus the Makewhole Premium Amount, if any, with respect to each such Note, shall become due and payable on the specified prepayment date. The Makewhole Premium Amount to be paid in connection with any prepayment of Notes pursuant to Section 6.2 shall be determined by the Company and written ----------- notice of the amount thereof shall be furnished to the Indenture Trustee and each Registered Owner of a Note at least two Business Days prior to the date fixed for such prepayment, which notice shall be accompanied by a certificate of a principal financial officer of the Company setting forth in reasonable detail the computation thereof and the methodology and assumptions made in connection therewith and attaching a copy of the source of the market data by reference to which the Treasury Yield was determined in connection with such computations. Section 6.4. Allocation of Partial Prepayments. In the event of any --------------------------------- prepayment of less than all of the Outstanding Notes pursuant to Section 6.1 or ----------- 6.2, the Company will allocate the principal amount so to be prepaid among all --- Outstanding Notes in proportion to the respective unpaid principal amounts thereof. Section 6.5. Surrender of Notes; Notation Thereon. Subject to the ------------------------------------ provisions of Section 2.2, the Company may, as a condition of payment on account ----------- of any Note, require the holder of such Note to present such Note to the Indenture Trustee for notation of such payment and, if such Note be paid in full, require the surrender thereof to the Indenture Trustee. Section 6.6. Purchase of Notes. The Company will not, and will not permit ----------------- any Subsidiary or Affiliate to, acquire directly or indirectly by purchase or prepayment or otherwise any of the Outstanding Notes except (a) by way of payment or prepayment in accordance with the provisions of the Notes and of this Indenture or (b) pursuant to an offer to purchase made by the Company or any Affiliate to the Registered Owners of all Notes at the time outstanding upon the same terms and conditions. All Notes purchased by the Company or any Affiliate in accordance with this Section 6.6 shall be cancelled and no Notes shall be ----------- issued in substitution or exchange therefor. Section 6.7. Maturity. In all events, the Notes will mature May 1, 2004, -------- at which time the entire remaining principal balance and all unpaid accrued interest shall be due and payable in full. -41- ARTICLE 7 DEFAULT AND REMEDIES Section 7.1 Events of Default. Each of the following, whether voluntary or ----------------- involuntary, shall constitute an "Event of Default" hereunder: (a) Non-Payment of Interest. Default in the payment when due of any ----------------------- interest on any Note and continuance of such default for a period of five days. (b) Non-Payment of Principal or Premium. Default in the payment when due ----------------------------------- of all or any part of the principal of, or premium on, any Note, whether at stated maturity, by acceleration, by notice of prepayment or otherwise. (c) Other Payments. Default in the payment when due of any other -------------- Obligation, including any amount payable by the Company under this Indenture or the Note Purchase Agreement, and continuance of such default for a period of ten days. (d) Non-Compliance with Certain Provisions. Default in the performance or -------------------------------------- observance by the Company of any provision of Sections 3.1, 3.8, 3.9(a), 3.12, -------------------------------- 3.21, 3.22, 3.23, 3.24, 3.25, and 3.27. -------------------------------------- (e) Other Covenants. Default in the performance or observance by the --------------- Company or any provision of this Indenture or the Note Purchase Agreement, and continuance of such default for thirty days. (f) Representations and Warranties. Any representation or warranty made by ------------------------------ the Company or any Subsidiary in this Indenture or the Note Purchase Agreement or any other certificate or other instrument delivered pursuant hereto or thereto, proves to be inaccurate or incorrect or is breached or false or misleading, in all cases in any material respect, as of the date such representation or warranty is made or deemed made or reaffirmed. (g) Default under Other Debt. Default Shall be made in any payment of the ------------------------ principal of or premium or interest on any Debt of the Company or any Subsidiary which is outstanding in an aggregate unpaid principal amount equal to or exceeding $500,000, when and as the same shall become due and payable (whether at stated maturity, by notice of prepayment or otherwise), and any applicable grace period shall have expired; or any other -42- event shall occur or condition shall exist in respect of any Debt of the Company or any Subsidiary which is outstanding in an aggregate unpaid principal amount equal to or exceeding $500,000, or under any agreement or instrument relating to any such debt, the effect of which is to cause (or permit the holder of such debt or a trustee to cause) the acceleration of the maturity of such Debt or to require the repayment or repurchase of such Debt. (h) Bankruptcy, Insolvency, etc. The Company or any Subsidiary shall (1) ---------------------------- apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its property, (2) be generally unable to pay its debts as such debts become due, (3) make a general assignment for the benefit of its creditors, (4) commence a voluntary case under any law relating to bankruptcy, insolvency or reorganization, (5) file a petition seeking to take advantage of any other law providing for the relief of debtors, (6) fail to controvert in a timely or appropriate manner (but within thirty days in any event), or acquiesce in writing to, any petition filed against it in an involuntary case under any law relating to bankruptcy, insolvency or reorganization, (7) take any action under the laws of its jurisdiction or incorporation analogous to any of the foregoing, or (8) take any corporate action for the purpose of effecting any of the foregoing. (i) Involuntary Proceedings. A proceeding or case shall be commenced, ----------------------- without the application or consent of the Company or any Subsidiary in any court of competent jurisdiction seeking (1) its liquidation, reorganization, dissolution or winding up, or composition or readjustment of its debts, (2) the appointment of a trustee, receiver, custodian, liquidator, encumbrancer or the like of it or of all or any substantial part of its assets or (3) similar relief in respect of it under any law providing for the relief of debtors, and such proceeding or case shall continue undismissed, or unstayed and in effect, for a period of thirty days; or an order for relief shall be entered in an involuntary case under any law relating to bankruptcy, insolvency or reorganization against the Company or any Subsidiary. (j) Final Judgment for Payment of Money. Any final judgment for the ----------------------------------- payment of money shall be rendered by a court of competent jurisdiction against the Company or any Subsidiary and the Company or such Subsidiary shall not discharge the terms, or procure a stay of execution thereof within sixty days from the date of entry thereof -43- and within said period of sixty days, or such longer period during which execution of such judgment shall have been stayed, appeal therefrom and cause the execution thereof to be stayed during such appeal, and the maximum liability for such judgment together with all other such judgments not covered by insurance proceeds actually received by the Company or such Subsidiary shall equal or exceed in the aggregate $500,000. Then in every such case, during the continuance of any Event of Default: I . Upon the occurrence of an Event of Default with respect to the Company described in subsection (h) or (i) above, the entire unpaid principal amount of all Notes shall automatically be due and payable, together with interest accrued thereon and, to the extent permitted by law, the Makewhole Premium Amount, if any, for each Note that would be payable if the Company had elected to prepay such Note in full pursuant to Section 6.2 on the date of acceleration, all ----------- without any presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived. Upon the occurrence of any other Event of Default, the Trustees, by notice to the Company, may, and upon the request of the Registered Owners of 30% of the unpaid principal amount of the Outstanding Notes, shall, declare the entire unpaid principal amount of all Notes to be due and payable immediately, together with the interest accrued thereon and, to the extent permitted by law, the Makewhole Premium Amount, if any, for each Note that would be payable if the Company had elected to prepay such Note in full pursuant to Section 6.2 on the date of acceleration, provided that during the ----------- existence of an Event of Default described in subsection (a) or (b) above with respect to any Note the Registered Owner of such Note may, by written notice to the Company, declare such Note to be, and the same shall forthwith become, due and payable, together with the interest accrued thereof and, to the extent permitted by law, the Makewhole Premium Amount, if any, for each Note that would be payable if the Company had elected to prepay such Note in full pursuant to Section 6.2 on the date of acceleration. If the Registered Owner of any Note ----------- shall exercise the option specified in the proviso to the preceding sentence of this Paragraph I, the Company will forthwith give written notice thereof to the Registered Owners of all other Outstanding Notes and each such Registered Owner may (whether or not such notice is given or received), by written notice to the Company, declare the principal of all Notes held by it to be, and the same shall forthwith become, due and payable, together with the -44- interest accrued thereon and the Makewhole Premium Amount, if any, for each Note that would be payable if the Company had elected to prepay such Note in full pursuant to Section 6.2 on the date of acceleration. ----------- II. Either Trustee personally, or by such Trustee's agents or attorneys, may enter into and upon the Facilities and may exclude the Company and its agents and servants wholly therefrom; and, at the expense of the Mortgaged Property, may use, operate, manage and control the same and conduct the business thereof, may maintain and restore the Facilities, may insure and reinsure the Same and may make all necessary or proper repairs, renewals and replacements and any useful alterations, additions, betterments and improvements thereto and thereon, all as the Trustees may deem advisable; and in every case, the Trustees shall have the right to manage and operate the Facilities and to carry on the business thereof and exercise all rights and powers of the Company with respect thereto either in the name of the Company or otherwise as the Trustees shall deem best. The Trustees shall be entitled to collect and receive all earnings, revenues, rents, issues, awards, proceeds, profits and income of the Mortgaged Property and said earnings, revenues, rents, issues, awards, proceeds, profits and income of the Mortgaged Property are hereby assigned to the Trustees, their respective successors and assigns. After deducting the expenses of conducting the business thereof and of all maintenance, repairs, renewals, replacements, alterations, additions, betterments and improvements and taxes, assessments, insurance and prior or other proper charges upon the Mortgaged Property, as well as reasonable compensation for the services of all attorneys, servants and agents by the trustees properly engaged and employed (including compensation and expenses in connection with any appeal), the moneys arising as aforesaid shall be applied as follows: (1) in case the Notes have not been declared due and payable as described in Paragraph I above, first to the mandatory prepayments of principal and scheduled payments of interest on the Notes, when and as the same shall become payable, and second to the payment of any other sums required to be paid by the Company under this Indenture; or (2) in case the Notes shall have been declared due and payable as described in Paragraph I above, in the order of priorities -45- set forth in clauses second, third, fourth and fifth of Section 7.2(e). -------------- III. The Trustees shall have the right to foreclose the lien of this Indenture by notice and sale under the power of sale or to proceed by judicial foreclosure, in either case in accordance with applicable law. (A) The Trustees, with or without entry, personally or by their agents or attorneys, may exercise the power of sale hereby conveyed and granted by the Company and Guarantors and sell the Mortgaged Property and all estate, right, title, interest, claim and demand therein and right of redemption thereof at one or more private or public sales, as an entirety or in parcels and at such times and places and upon such terms as may be specified in the notice or notices of sale to be given to the Company and Guarantors or as may be required by law. Any number of sales may be conducted from time to time. The power of sale shall not be exhausted by any one or more of such sales as to any part of the Mortgaged Property remaining unsold, but shall continue unimpaired until all of the Mortgaged Property shall have been sold or the Notes and all indebtedness of the Company secured hereby shall have been paid. (B) In addition, the Trustees will have and may exercise the statutory power of sale provided by the laws of the State of California governing trust deeds with respect to Mortgaged Property within the State of California, and the Trustees will have and may exercise the statutory power to foreclose a trust deed by advertisement and sale as provided by the laws of the State of Idaho with respect to Mortgaged Property within the State of Idaho and by the laws of the State of Nevada with respect to Mortgaged Property within the State of Nevada. IV. The Trustees may take all steps to protect and enforce their rights and remedies provided hereby or by applicable law, whether by action, suit or proceeding in equity or at law (for the complete or partial foreclosure hereof, for the specific performance of any covenant, condition or agreement contained in the Notes or herein or in aid of the execution of any power herein granted or for the enforcement of any other appropriate legal or -46- equitable remedy) or otherwise as the Trustees shall deem most effectual to protect and enforce the same. V. The Trustees will have all the rights and remedies provided to a secured party by the Uniform Commercial Code with respect to such portion of the Mortgaged Property as is governed by the Uniform Commercial Code, and this instrument shall constitute a security agreement under the Uniform Commercial Code. Section 7.2. Sale of Mortgaged Property; Application of Proceeds. (a) The ---------------------------------------------------- Trustees may postpone any sale of all or any part of the Mortgaged Property under or by virtue of this Article by public announcement at the time and place of such sale, and from time to time thereafter may further postpone such sale by public announcement made at the time of sale fixed by the preceding postponement. (b) Upon the completion of any sale or sales made by the Trustees under or by virtue of this Article, the Trustees shall execute and deliver to the purchaser good and sufficient deeds and other instruments conveying, assigning and transferring all of their estate, right, title and interest in and to the property and rights sold. The Trustees are hereby irrevocably appointed the true and lawful attorneys of the Company and any subsequent owner of the Mortgaged Property or any part thereof to make, in their own name and stead or in the name of the Company or any such subsequent owner, all necessary conveyances, assignments, transfers and deliveries of the property and rights so sold, and for that purpose the Trustees may execute all necessary deeds and instruments of assignment and transfer and may substitute persons with like power, the Company and every such subsequent owner hereby ratifying and confirming all that their said attorneys or such substitutes shall lawfully do by virtue hereof. Nevertheless, the Company and any such subsequent owner, if so requested by the Trustees, shall ratify and confirm any such sale by executing and delivering to the Trustees, without recourse, or to such purchaser any instrument which, in the judgment of the Trustees, is suitable or appropriate therefor. Any such sale made under or by virtue of this Article, whether made under the power of sale herein granted or under or by virtue of judicial proceedings or of a judgment or decree of foreclosure and sale, shall operate to divest all the estate, right, title, interest, claim and demand whatsoever, whether at law or in equity, of the Company and any Person claiming from, through or under the Company in and to the property and rights so sold, and shall be a perpetual bar at law and in equity against the Company and its successors, assigns and any and all persons who claim or may claim the same from, through or under any of them. (c) The receipt of the Trustees, or either of them of the purchase money paid as a result of any such sale shall be a sufficient discharge therefor to any purchaser of the Mortgaged -47- Property sold as aforesaid; and no such purchaser or its representatives, grantees or assigns, after paying such purchase money and receiving such receipt, shall be bound to see to the application of such purchase money upon or for any purpose hereof, shall be answerable in any manner whatsoever for any loss, misapplication or non-application of any of such purchase money or shall be bound to inquire as to the authorization, necessity, expediency or regularity of any such sale. (d) In the event of any sale made under or by virtue of this Article (whether made under the power of sale herein granted or under or by virtue of judicial proceedings or of a judgment or decree of foreclosure and sale), the entire principal of and interest on the Notes and all other sums required to be paid by the Company pursuant hereto, if not previously due and payable, shall immediately become due and payable, anything in the Notes or in this Indenture to the contrary notwithstanding. (e) The purchase money, proceeds or avails of any sales made under or by virtue of this Article, together with any other sums which then may be held by the Trustees as part of the Mortgaged Property or the proceeds thereof, whether under the provisions of this Article or otherwise, Shall be applied to the extent not prohibited by applicable law: first, to the payment of the costs and ----- expenses of such sale, including reasonable compensation to the Trustees, their agents and counsel, and of any judicial proceedings wherein the same may be made; second, to the payment of the whole amount then owing on the Notes for ------ premium, if any; third, to the payment of the whole amount then owing on the ----- Notes for interest; fourth, to the payment of the whole amount then owing on the ------ Notes for principal; fifth, to the payment of any other sums secured by this ----- Indenture; and sixth, to the payment of the surplus, if any, to whomsoever shall ----- be lawfully entitled thereto. (f) In case of any proceedings against or involving the Company in insolvency or bankruptcy (including any proceedings under any federal or state bankruptcy or insolvency statute or similar law) or any proceedings for its reorganization or involving the liquidation of its assets, the Trustees shall be entitled to prove the whole amount of principal, interest and premium, if any, due upon the Notes to the full amount thereof and all other payments, charges and costs due under this Indenture without deducting therefrom any proceeds obtained from the sale of the whole or any part of the Mortgaged Property; provided, however, that in no case shall be the Trustees receive a greater amount than such principal, interest and premium, if any, and such other payments, charges and costs from the aggregate amount of the proceeds of all sales of the Mortgaged Property and the distribution from the estate of the Company. Section 7.3. Purchase by the Trustees. Upon any sale made under or by ------------------------ virtue of this Article (whether made under any -48- power of sale herein granted or under or by virtue of judicial proceedings or of a judgment or decree of foreclosure and sale), to the extent permitted by applicable law, the Trustees, on behalf of the Registered Owners of the Notes, may bid for and acquire the Mortgaged Property or any part thereof and in lieu of paying cash therefor may make settlement for the purchase price by crediting upon the indebtedness of the Company secured by this Indenture the net proceeds of sale after deduction of all costs, expenses, compensations and other charges to be paid therefrom as herein provided and any other sums which the Trustees are authorized to deduct under this Indenture. The Person making such sale shall accept such settlement without requiring the production of the Notes, and without such production there shall be deemed credited thereon the net proceeds of sale ascertained and established as aforesaid. The Trustees, or either of them, upon so acquiring the Mortgaged Property or any part thereof, shall be entitled to hold, deal with and sell the same in any manner permitted by applicable laws. Section 7.4. Receivers. After the happening of any Event of Default --------- hereunder, immediately upon the commencement of any legal proceeding by the Trustees for or in aid of the enforcement of the Notes or of this Indenture, and without regard to the adequacy of the security of the Mortgaged Property, the Trustees shall be entitled to the appointment of a receiver or receivers of the Mortgaged Property and of all the earnings, revenues, rents, issues, profits and income thereof, and the Company hereby irrevocably consents to any such appointment. Section 7.5. Suits by the Trustees. All rights of action under this --------------------- Indenture or under any of the Notes may be enforced by the Trustees without the possession of any of the Notes and without the production thereof at any trial or other proceeding relative thereto. A copy of any Note, if properly certified by the Trustees to be true and correct, shall constitute conclusive evidence of all matters that could be proven by production of the original of that Note in any trial or proceeding relative thereto. Any such suit or proceeding instituted by the Trustees shall be brought in their names as the Trustees, and any recovery of judgment shall be, subject to the rights of the Trustees for the ratable benefit of the Registered Owners of the Notes. Section 7.6. Waiver of Remedies. The Trustees, subject to the proviso to ------------------ this sentence, upon the request of the Registered Owners of at least 66 2/3% of the unpaid principal amount of Outstanding Notes shall waive any Default or Event of Default and its consequences, except a Default or Event of Default (i) in the payment or prepayment of the principal and interest and premium, if any, on any Notes when and as the same shall become due and payable or (ii) depriving the Trustees or the Registered Owner of any Note or a lien upon the Mortgaged Property, waiver of which Defaults or Events of Default specified in clause (i) or (ii) above -49- shall require the consent of all Registered Owners at the time; provided, however, that if the Registered Owner shall have exercised the option specified in the proviso to Paragraph I of Section 7.1 to accelerate such Note and not all ----------- ----------- of the Registered Owners of Outstanding Notes shall have exercised their option specified in the last sentence of Paragraph I of Section 7.1 to accelerate their ----------- ----------- respective Notes, then in such case the Registered Owners of the Notes who have so exercised such option to accelerate such Notes specified in such proviso or Such last sentence, as the case may be, by written notice to the Company, may rescind and annul any such acceleration and its consequences; but no Such action shall affect any subsequent Default or Event of Default or impair any right consequent thereon. In case of any such waiver or in case any proceeding taken on account of any such Default or Event of Default shall have been discontinued or abandoned or determined adversely to the Trustees, then and in every Such case, the Company, the Trustees and the Registered Owners of the Notes shall be restored to their former positions and rights hereunder respectively. No such waiver shall extend to any subsequent or other default or impair any right consequent thereon. Section 7.7. Remedies Cumulative. No remedy herein conferred upon or ------------------- reserved to the Trustees or the Registered Owners of the Notes is intended to be exclusive of any other remedy or remedies, and each Such remedy shall be cumulative and in addition to every other remedy given hereunder or now or hereafter existing at law or in equity. No delay or omission of the Trustees to exercise any right or power accruing upon any Event of Default Shall impair any such Event of Default or in acquiescence therein, and every power and remedy of the Trustees hereunder may be exercised from time to time and as often as may be deemed expedient by the Trustees or the Registered Owners Of the Notes. No delay or omission of the Trustees or the Registered Owners of the Notes to exercise any right or power accruing upon an Event of Default shall impair any such right or power or shall be construed to be a waiver of any such Event of Default or an acquiescence therein. Section 7.8. Waiver of Rights - The Company agrees that it will not at any ---------------- time or in any manner whatever claim or take any benefit of any stay, extension or moratorium law which may affect the terms of this Indenture; nor claim or take any benefit of any law providing for the valuation or appraisal of the Mortgaged Property or any part thereof prior to any sale thereof; nor, prior to or after any such sale, claim or exercise any right to redeem the property so sold or to be sold or any part thereof; and the Company hereby expressly waives all benefit or advantage of any such law and covenants not to hinder delay or impede the execution of any power or remedy herein granted or available at law or in equity, but to suffer and permit the execution of every power and remedy as though no such law existed. The Company waives all right to have the Mortgaged Property marshalled upon any foreclosure hereof. -50- Section 7.9. Retention of Possession. Notwithstanding the appointment of ----------------------- any receiver, liquidator or trustee of the Company, or of any of its property, or of the Mortgaged Property or any part thereof, the Trustees shall be entitled to retain possession and control of all property now or hereafter granted to or held by the Trustees under this Indenture. Section 7.10. Direction of Remedies. Subject to the proviso contained in --------------------- Paragraph I of Section 7.1, the Required Holders shall have the right by an ----------- ----------- instrument in writing delivered to the Trustees to direct the time, method and place of conducting any proceeding for any remedy available to the Trustees with respect to this Indenture or of exercising any power or trust conferred upon the Trustees, and the Indenture Trustee shall have the right to decline to follow any such direction if the Indenture Trustee in good faith shall, by action of the President or a Vice President of the Indenture Trustee, determine that the proceeding so directed would involve it in personal liability or would be unjustly prejudicial to the Registered Owners of Notes not joining in such direction. The Trustees, or either of them, shall not be liable with respect to any action taken or omitted to be taken by them in good faith in accordance with any written instruction furnished to the Trustees, or either of them, by the Required Holders (or Registered Owners of such other percentage of unpaid principal amount of Outstanding Notes provided for in this Indenture) in response to a written application by the Indenture Trustee therefor. It no such instrument or instruction has been received from the Required Holders, the Trustees, or either of them, may take such action, if any, as the Trustees or either of them, shall determine. 7.11. Suit by Registered Owners. If an Event of Default shall have ------------------------- occurred and be continuing and the Registered Owner or Registered Owners of at least 30% of the unpaid principal amount of the Outstanding Notes shall have requested the Trustees, or either of them, to act with respect thereto against the Mortgaged Property as specified in Section 7.1 and the Indenture Trustee or ----------- the Individual Trustee, as the case may be, shall have failed so to act within fifteen days of such request, then and only then, subject to the next sentence of this Section 7.11, shall any Registered Owner have the right to institute ------------ proceedings against the Mortgaged Property for the collection of all moneys due and payable, whether for principal, interest or premium, if any, or any other indebtedness relating to the Notes. Notwithstanding anything herein to the contrary, no Registered Owner of a Note shall be entitled to take any judicial action or institute any suit to initiate foreclosure proceedings without respect to the Mortgaged Property located in the State of California or any part thereof or to enforce, by any judicial proceeding in the State of California, the payment of its Note or Notes, whether for principal, interest or premium, if any, or any other indebtedness thereunder, to the -51- extent that the taking of such action or the institution or prosecution of any such suit or the entry of judgment therein would under applicable law result in a surrender, impairment, waiver or loss of the lien of this Indenture upon the Mortgaged Property located in the State of California, or any part thereof, as security for Notes held by any other Registered Owner of a Note. Section 7.12. Waiver of Certain Rights with Respect to Sale of the ---------------------------------------------------- Security. Grantors acknowledge that all or any part of the Obligations may -------- become secured by certain other deeds of trust and security agreements covering property in addition to the Mortgaged Property covered by this Indenture. Said additional property shall, collectively with the Mortgaged Property covered by this Indenture, hereinafter be referred to as the "Security". (a) Marshalling. Grantors hereby waive any marshalling equity or other ----------- right to inhibit, delay or restrict any sale or other disposition of the Security or any part thereof or to direct the order of such sale or sales or other disposition. (b) Notice of Sale. Any power of sale granted to the Trustees or -------------- Beneficiaries in this Indenture may be exercised, pursuant to a single notice of trustee's sale, separately with respect to each and every item or parcel of Security or with respect to groups and assemblages of Security, in the Trustees' or the Beneficiaries' sole discretion, and may be exercised on separate days or at separate times or in separate places; the exercise of such power of sale shall not be an action for purposes of any law or statute pertaining to actions to enforce secured transactions. (c) Redemption and Valuation. As and to the fullest extent permitted by ------------------------ law, Grantors waive any statutory right of redemption following any sale or other disposition of Security by the Trustees or Beneficiaries and any right to have Security which is sold or otherwise disposed of valued after such sale or disposition, so that the total deficiency then remaining may be bid in any order and in any part by the Trustees or Beneficiaries at any other sale until the debt is satisfied in full or the final deficiency then remaining shall be reducible to judgment against the Company by any court of competent jurisdiction; provided that, notwithstanding anything to the contrary contained in this Indenture or any other deed of trust or security agreement covering any of the Security, the value of the Security sold or otherwise disposed of shall, to the extent required by the law of the jurisdiction in which such Security is located, be taken into account before entering a deficiency judgment against the Company. -52- (d) Defenses. Any defense available to the Company with respect to or as a -------- result of a sale or other disposition of any Security pursuant to this section within one state shall not be available to the Company with respect to any Security located in any other state. (e) Sale of Security. The Trustees or Beneficiaries shall be entitled to ---------------- sell or dispose of any Security or any part thereof pursuant to this Indenture or any other deed of trust or security agreement in any order and in any state or states, whether privately or by court proceeding for foreclosure, seizure, appointment of receiver or otherwise, without regard to any substantive or procedural defense, pleading bar, sanction or other remedy which would otherwise be available to the Company affecting Trustees' or Beneficiaries' sole discretion to sell or dispose of the Security or any part thereof in one action rather than in multiple actions, en masse rather than by parcel, or in satisfaction of all the indebtedness then secured by such Security rather than of any part of the indebtedness designated by Trustees' or Beneficiaries in their sole discretion, and for that purpose, and as and to the extent required to make the remaining waivers, representations and agreements Bet forth in this section and permitted by law, Grantors hereby disclaim any right and waive any defense under (i) California Code of Civil Procedure Section 580d, concerning the bar against rendition of a deficiency judgment after foreclosure under a power of sale, (ii) California Code of Civil Procedure Section 726, concerning the form of foreclosure proceedings with respect to real property security located in California, (iii) California Civil Code Section 1479, concerning the application of general performance under several obligations to one creditor, (iv) California Civil Code Section 2924g(b), concerning the conduct of trustee's sales, and (v) California Civil Code Section 3433, concerning the relative rights of different creditors interested in the same property. Trustees or Beneficiaries shall be entitled to direct the manner of sale of all or any part of the Security at foreclosure such that payment in cash or other immediately available funds is received at the completion of said foreclosure, and Grantors hereby waive any claim to require said sale to be conducted on any other basis as to the timing and manner of payment of the purchase price. -53- ARTICLE 8 THE TRUSTEES Section 8.1. Rights and Obligations of Trustees. The Trustees accept the ----------------------------------- trusts hereby created and agree to perform their duties herein for the benefit of the Beneficiaries upon the following terms and conditions: (a) The Trustees shall have the full power and authority to do all things not inconsistent with the provisions of this Indenture or applicable law in order to enforce this Indenture or to take any action with respect to an Event of Default, or to institute, appear in or defend any suit or other proceeding with respect thereto, or to protect the interests of the Beneficiaries. Not in limitation of the foregoing, the Trustees shall have all of the rights and powers set forth in (i) Sections 2924 et seq. of the California Civil Code in ------- relation to the portion of the Mortgaged Property located in the State of California, (ii) Sections 45-1502 et seq. of the Idaho Code in relation to the ------- portion of Mortgaged Property located in the State of Idaho, and Sections 107.020 et seq. of the Nevada Revised Statutes in relation to the portion of ------- Mortgaged Property located in the State of Nevada. The Trustees shall not be answerable or accountable except for their own willful misconduct or gross negligence, and the Company agrees to indemnify and save harmless the Trustees from any liability and damages which they may incur or sustain in the exercise and performance of their powers and duties hereunder, nor shall the Trustees be accountable for the use of any proceeds from the sale of the Notes. The Indenture Trustee shall be obligated to timely make all required refilings of any financing statements referred to in Section 3.3 hereof (unless such ----------- refilings relate to original filings of which the Indenture Trustee has no knowledge), and upon request of any of the Beneficiaries, any other security documents necessary or appropriate to preserve the liens created hereby but shall have no obligation to take any action to protect, preserve or enforce any rights or interests in the Mortgaged Property or towards the execution or enforcement of the trusts hereby created which, in its opinion, shall be likely to involve expense or liability, unless the Beneficiaries shall furnish reasonable indemnity against such liability and expense to the Indenture Trustee. In accepting the trusts hereunder and the Mortgaged Property, the Trustees are acting solely as trustees hereunder and not in their individual capacities and all Persons, other than the Beneficiaries, having any claim against the Trustees arising by reason -54- hereof (other than claims in respect of the gross negligence or willful misconduct of the Indenture Trustee or the Individual Trustee) shall look only to the Mortgaged Property for payment or satisfaction thereof. Unless and until an Event of Default shall have occurred and be continuing, the Trustees shall not be obligated to take any action under this Indenture or any document included in the Mortgaged Property except for the performance of such duties as are specifically set forth herein or therein and except as may be requested from time to time in writing by the Required Holders. If and so long as an Event of Default (of which the Trustees shall be deemed to have knowledge, as hereinafter provided) shall have occurred and be continuing, the Trustees shall exercise such rights, powers and remedies (whether vested in them by this Indenture or by law or in equity or by statute or otherwise) for the protection and enforcement of their rights under this Indenture and in respect of the Mortgaged Property as the Trustees (in the absence of written instructions from the Beneficiaries pursuant to Section 7.10) may determine, and shall use the same ------------ degree of care and skill in such exercise as a prudent person would use under the circumstances in the conduct of such person's own affairs. (b) The Trustees shall be entitled to receive the compensation from the Company for all services rendered by them hereunder prior to an Event of Default, and to be reimbursed for all proper disbursements incurred by them hereunder prior to an Event of Default, provided that no commissions shall be paid for the collection of moneys pursuant to the terms hereof. The Trustees shall be entitled to reasonable compensation for their services and reimbursement for all proper disbursements incurred by them upon or after an Event of Default, or instituting, appearing in or defending any suit or proceeding with respect thereto. All sums payable pursuant to this Section 8.1(b) shall be secured by the lien of this Indenture. -------------- (c) The Trustees shall incur no liability in acting upon any signature, notice, request, consent, instrument, certificate, opinion, or other instrument reasonably believed by them in good faith to be genuine. In administering the trusts, the Trustees may execute any of the trusts or powers hereof directly or through their agents or attorneys and may consult with counsel, accountants and other skilled persons to be selected and employed by them, and the reasonable expenses thereof shall be paid by the Company, and the Trustees shall not be liable for anything done, suffered or omitted in good -55- faith by them in accordance with the advice of any such person. (d) The recitals and statements (other than express covenants of the Trustees) in this Indenture, the Note Purchase Agreement and the Notes (except for the Indenture Trustee's certificate of authentication endorsed on the Notes) shall not be considered as made by, or as imposing any obligation or liability upon, the Trustees. The Trustees make no covenant or representation as to the rights of the holders of the Notes, the title or interest of the Company in or to, or the condition of, the Mortgaged Property or the sufficiency of the security for the Notes or of this Indenture, except that the Trustees represent and warrant that this Indenture is valid, binding and enforceable in and with respect to the Trustees in accordance with its terms. (e) The Trustees shall have no duty to see to any recording, filing or registration of this Indenture, any instrument of further assurance, any instrument constituting part of the Mortgaged Property, or any amendments or supplements to any of said instruments, other than those refilings referred to in Section 8.1(a) above, or to see the payment of any fees, charges or taxes -------------- in connection therewith (and the Trustees may act with respect to the Notes and pay out deposited moneys without regard thereto), or to give any notice thereof, or to see to the payment of or be under any duty in respect of any tax, assessment or other governmental charge which may be levied or assessed on the Mortgaged Property or any part thereof or against the Company. (f) Whenever in administering the trust, the Trustees shall deem it necessary or desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate or other instrument purporting to be signed by a Responsible Officer of the Company and delivered to the Trustees, and such certificate or other instrument shall be full warrant to the Trustees for any action taken, suffered or omitted by them on the faith thereof, but in their discretion the Trustees may in lieu thereof accept other evidence of such fact or matter or may require such further or additional evidence as may seem reasonable to them. (g) The Trustees shall have no obligation to see to the payment or discharge of any Liens (other than the lien of this Indenture and then only to the extent herein -56- or therein provided, and Liens, if any, arising by reasons of their acts or omissions unrelated to the discharge of their duties as Trustees hereunder) upon the property included in the Mortgaged Property, or to see to the payment of the principal of, premium or interest on any obligation secured thereby or to the delivery or transfer to any person of any property released from any such Lien, or to give notice to or make demand upon any mortgagor, mortgagee or other Person for the delivery or transfer of any such property. (h) The Trustees shall have no duty to confirm or verify any schedules setting forth the interest and principal payments to be made on the Notes or any financial or other statements or reports or certificates furnished pursuant to any provision hereof, and, except as otherwise provided hereby they shall be under no other duty in respect of the same, except to retain the same in their files, and permit the inspection thereof at reasonable times by any of the Beneficiaries. The Trustees shall have no duty to exercise any right or perform any obligation, as assignee of the Company, under any Material Contract. (i) The Trustees shall not be concerned with or accountable to any Person for the use or application of any deposited moneys; which shall be released or withdrawn in accordance with the provisions hereof or of any property or securities or the proceeds thereof which shall be released from the lien of this Indenture in accordance with the provisions hereof. (j) The Trustees shall not be required to ascertain or inquire as to the performance or observance of any of the covenants or agreements herein contained, or contained in any other instruments, pledged or assigned to the Trustees hereunder, to be performed or observed by the Company or any party to any such other instruments. The Trustees shall not be required to take notice or be deemed to have notice or knowledge of any Default or Event of Default (except default in the payment of moneys to the Trustees which are required to be paid to the Trustees on or before a specified date or within a specified time after receipt by the Trustees of a notice or certificate which was in fact received and except default in the delivery of any certificate, opinion or other document expressly required to be delivered to the Trustees by any provision hereof), unless (i) the Trustees shall receive from the Company or any of the Beneficiaries written notice stating that a Default or Event of Default has occurred and specifying the same, or (ii) the Individual Trustee or a responsible officer -57- in the corporate trust department of the Indenture Trustee shall otherwise obtain actual knowledge thereof and in the absence of such notice or such actual knowledge, the Trustees may conclusively assume that there is no such Default or Event of Default, except as aforesaid. As soon as practicable after receiving knowledge thereof, the Indenture Trustee shall notify all Beneficiaries and the Company of any Event of Default, and if such Event of Default is subsequently wholly cured or waived, the Indenture Trustee shall give notice to such effect to the Beneficiaries and the Company. (i) The Indenture Trustee shall forward to each of the Beneficiaries a copy of any financial report, certificate or communication submitted to the Trustees pursuant to this Indenture unless the Indenture Trustee has determined that said Person has actually received the same. Section 8.2. The Individual Trustee. The Individual Trustee shall be ---------------------- subject to the following terms and conditions: (a) Subject to the provisions of Section 8.6, all rights, powers, duties ----------- and obligations conferred or imposed upon the Trustees shall be conferred or imposed solely upon and solely exercised and performed by the Indenture Trustee, except as expressly provided otherwise in this Indenture and except to the extent that under any law of any jurisdiction in which any particular act is to be performed the Indenture Trustee shall be incompetent or unqualified to perform such act, in which event such rights, powers, duties and obligations shall be exercised and performed by the Individual Trustee. (b) Any power granted by this Indenture to or which this Indenture provides may be exercised by the Individual Trustee shall not be exercised by him except jointly with, or with the written consent of, the Indenture Trustee. (c) The Individual Trustee may, at any time by an instrument in writing, constitute the Indenture Trustee or its successor in trust hereunder his agent or attorney-in-fact, with full power and authority, to the extent which may be permitted by law, to do any and all acts and things and exercise any and all discretion which he is authorized or permitted to do or exercise, for and in his behalf and in his name. Section 8.3. Resignation of Indenture Trustee. The Indenture Trustee may -------------------------------- resign and be discharged of the trusts by giving notice thereof to each of the Beneficiaries and the Company -58- (or any subsequent owner of the Company's interest in any property included in the Mortgaged Property), specifying the date (not less than sixty days after such-notice) when such resignation shall take effect. Notwithstanding the foregoing, no such resignation Shall take effect until the appointment and acceptance of a successor trustee pursuant to Section 8.4. Section 8.4. Successor Indenture Trustee. (a) The Indenture Trustee may be ---------------------------- removed at any time by notice from the Required Holders. If the Indenture Trustee shall have given notice of its intention to resign, shall resign, be removed or otherwise be incapable of acting, or if the Indenture Trustee shall be taken under the control of any public officer or a receiver appointed by a court, or be adjudged a bankrupt or insolvent, then a successor may be appointed by the Required Holders; provided, however, that the Company may appoint a successor trustee to act until such successor shall be so appointed. The Company shall notify the Beneficiaries of any such appointment by the Company, but any successor trustee so appointed by the Company shall immediately and without further act be superseded by a successor trustee appointed by the Beneficiaries as above provided. (b) Any successor to the Indenture Trustee shall execute, acknowledge and deliver to its predecessor and the Company (or any subsequent owner of the Company's interest in the property included in the Mortgaged Property), an instrument accepting such appointment, and thereupon such successor, without any further act, deed or conveyance, unless otherwise required by applicable state law, shall become vested with all the estate, properties, rights, powers, duties and trusts of its predecessor in the trusts hereunder with like effect as if originally named as trustee herein; provided, however, that on the written request of the Company, any of the Beneficiaries or the successor trustee, such predecessor shall execute and deliver an instrument transferring to such successor, upon the trust expressed in this Indenture, such estate, properties, rights, powers, duties and trusts and shall duly assign, transfer, deliver and pay over to such successor, any property and moneys subject to the lien of this Indenture and held by such predecessor. The successor Indenture Trustee shall deliver to each of the Beneficiaries and to the Company (or any subsequent owner of the Company's interest in the property included in the Mortgaged Property) a copy of any such instrument accepting appointment promptly after its execution thereof. (c) Any successor to the Indenture Trustee shall always be a bank or trust company organized under the laws of the United States of America or a State thereof licensed, chartered or regulated by the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Federal Savings and Loan Insurance Corporation, the Federal Home Loan Bank Board, the Farm Credit Administration or the Bureau of Federal Credit Unions or any successor thereof, having a combined capital, surplus and undivided -59- profits (as shown by its most recent financial statement published to its shareholders) aggregating at least $100,000,000 and a principal office in one of the forty-eight contiguous United States, in which it is duly authorized to act as a trustee. (d) Subject to the preceding subsection (c) any corporation into which the Indenture Trustee may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation or conversion to which it shall be a party, shall be the successor to the Indenture Trustee without the execution or filing of any paper or any further act on the part of any of the parties hereto. Section 8.5. Resignation and Removal of Individual Trustee. (a) The --------------------------------------------- Individual Trustee may resign and be discharged of the trusts by notice thereof to the Beneficiaries, the Company (or any subsequent owner of the Company's interest in the property included in the Mortgaged Property) and the Indenture Trustee specifying the date (which shall be not less than thirty days after the date of such notice) when Such resignation shall take effect. Notwithstanding the foregoing, no such resignation shall take effect until the appointment of a successor Individual Trustee as hereinafter provided. (b) The Individual Trustee may be removed at any time by the Required Holders, by delivery of a notice of such removal to the Individual Trustee and the Indenture Trustee, or by the Indenture Trustee, by delivery of a notice of such removal to the Individual Trustee and the Beneficiaries. (c) If at any time the Individual Trustee shall die, resign or be removed or otherwise become incapable of acting, or if for any reason the office of Individual Trustee shall become vacant, a successor shall forthwith be appointed by the Indenture Trustee or, if the Indenture Trustee shall fail to make such appointment within sixty days after such occurrence, by the Required Holders. (d) Any successor to the Individual Trustee Shall execute, acknowledge and deliver to his predecessor, the Indenture Trustee and the Company (or any subsequent owner of the Company's interest in the property included in the Mortgaged Property), an instrument accepting such appointment, and thereupon such Person, without any further act or instrument unless otherwise required under applicable state law, Shall become vested with all the estates, properties, rights, powers, duties and trusts of his predecessor in the trusts hereunder with like effect as if originally named as Individual Trustee herein; provided, however, that on written request of any of the Beneficiaries, the Company, the Indenture Trustee or such successor, such predecessor shall execute and deliver an instrument transferring to such successor, upon the trusts herein expressed, such estates, properties, rights, -60- powers, duties and trusts, and shall duly assign, transfer, deliver and pay over to such successor, any property and money subject to the lien hereof held by such predecessor. The Indenture Trustee shall deliver to each of the Beneficiaries and the Company a copy of any such instrument accepting appointment promptly after the execution thereof by any successor to the Individual Trustee. Section 8.6. Separate and Co-Trustees. (a) If it deems such to be necessary ------------------------- or prudent, the Indenture Trustee shall have the power to, and upon the written request of the Required Holders shall, appoint one or more Persons to act as separate trustees or co-trustees, jointly with the Indenture Trustee, of any of the property subject to the lien hereof, and any such Person shall be such separate trustee or co-trustee, with such powers and duties as shall be specified in such instrument. (b) Every separate trustee and co-trustee shall, to the extent not prohibited by law, be subject to the following terms and conditions: (1) the rights, powers, duties and obligations conferred or imposed upon such separate or co-trustee shall be conferred or imposed upon and exercised or performed by the Indenture Trustee and such separate or co-trustee, as shall be set forth in the instrument appointing him or it; provided, however, that such separate or co-trustee Shall take no action without the consent of the Indenture Trustee (unless the requirement for such consent shall be forbidden by law as to any particular application of such requirement); (2) all powers, duties, obligations and rights conferred upon the Indenture Trustee, in respect of the custody of all cash deposited hereunder, shall be exercised solely by the Indenture Trustee; and (3) the Indenture Trustee may at any time by written instrument accept the resignation of or, acting on behalf and direction of the Beneficiaries, remove any such separate trustee or co-trustee, and upon the request of the Indenture Trustee, the Company shall join with the Indenture Trustee in the execution, delivery and performance of all instruments and agreements necessary or proper to make effective such resignation, but the Indenture Trustee shall have the power to accept such resignation or to make Such removal without making such request. A successor to a separate trustee or co-trustee so resigning or removed may be appointed in the manner provided in this Section. (c) Such separate trustee or co-trustee, upon acceptance of such trust, shall be vested with the estates or property specified in such instrument, either jointly with the Trustees, or separately, as may be provided therein, subject to all the trusts, -61- conditions and provisions of this Indenture; and every such instrument shall be filed with the Indenture Trustee. Any separate trustee or co-trustee may, at any time, by written instrument constitute the Indenture Trustee his agent or attorney-in-fact with full power and authority, to the extent permitted by law, to do all acts and things and exercise all discretion authorized or permitted by him, for and in behalf of him and his name. If any separate trustee or co- trustee shall be dissolved, become incapable of acting, resign, be removed or die, all the estates, property, rights, powers, trusts, duties and obligations of said separate trustee or co-trustee, so far as permitted by law, shall vest in and be exercised by the Indenture Trustee, without the appointment of a successor to said separate trustee or co-trustee, until the appointment of a successor to said separate trustee or co-trustee is necessary as provided in Section 8.6(a). -------------- (d) Any notice, request or other writing, by or on behalf of the holders of the Notes delivered to the Indenture Trustee shall be deemed to have been delivered to the Individual Trustee, and all separate trustees and co-trustees. Section 8.7. Liability of Trustees. No trustee hereunder shall be --------------------- personally liable by reason of any act or omission of any other trustee hereunder. Section 8.8. Segregation of Moneys. All moneys received by the Trustees --------------------- pursuant to this Indenture shall be held in trust for the purposes for which they were paid, but, except as otherwise provided herein and to the extent required by law, need not be segregated from any other moneys, and may be deposited by the Indenture Trustee under such general conditions as may be prescribed by law in the general banking department of the Indenture Trustee, and the Indenture Trustee shall not be liable for any interest thereon, except as otherwise provided herein. Section 8.9. Illegal Acts. No provision of this Indenture or any amendment ------------ or supplement hereto shall be deemed to impose any duty or obligation on the Trustees to perform any act in the execution of the trust or to exercise any right, power, duty or obligation conferred or imposed on them, which under any present or future law shall be unlawful, or which shall be beyond the corporate powers, authorization or qualification of the Trustees, but any such act and any such exercise shall be performed and exercised by any separate trustee or co- trustee appointed as provided in Section 8.6, provided, that the same shall not ----------- be unlawful or beyond his or its powers, authorization or qualification. -62- ARTICLE 9 SUPPLEMENTAL INDENTURES; WAIVERS Section 9.1. General. The Company and the Trustees may enter into ------- indentures supplemental hereto or may waive (either generally or in a particular instance and either retroactively or prospectively) any provision of this Indenture or the Notes, as provided in this Article 9. The Trustees may, in --------- their discretion, decline to enter into any supplemental indenture, or to execute any such instrument of waiver, if the Trustees' own rights, duties or immunities would be adversely affected. Whenever the consent of any of the Beneficiaries shall be required for the execution of a supplemental indenture, or instrument of waiver, it shall be sufficient if the substance of the supplemental indenture or instrument of waiver, is consented to, not its particular form. The Company and the Trustees agree to enter into a supplemental indenture at any time a Person not theretofore a Beneficiary under this Indenture becomes such as a result of the transfer of any Note pursuant hereto, upon the request of such new Beneficiary. Section 9.2. Without Consent of Beneficiaries. Indentures supplemental -------------------------------- hereto may be entered into without the consent of any of the Beneficiaries for any of the following purposes: (a) to correct or amplify the description of any property subject or intended to be subject to the lien of this Indenture; (b) to add property to the Mortgaged Property or to Grant additional property to the Trustees; (c) to increase obligations or duties owing to the Trustees, or to surrender any of the Company's rights hereunder; and (d) to reflect the identity of any new Beneficiary hereunder. Section 9.3. Consent of All Beneficiaries. Without the consent of all of ---------------------------- the Beneficiaries, no indenture supplemental hereto or instrument of waiver in respect hereof shall: (a) impair the right of any of the Beneficiaries to receive the payments and prepayments of principal, premium and interest on the Notes as now provided therein or herein; (b) change the rate or the time of payment of interest on any of the Notes, change the maturity of any of the Notes or affect the premium payable on any prepayment of a Note, -63- without the consent of the Registered Owner of each Note so affected; (c) modify any of the provisions of this Indenture with respect to the payment or prepayment of any Note, or reduce the percentage of the principal amount of the Notes the Registered Owners of which are required to approve any such modification or effectuate any such modification or effectuate any such waiver, without the consent of the Registered Owners of all the Notes then outstanding; (d) permit the creation of any Lien on the property included in the Mortgaged Property except Permitted Liens or as otherwise permitted hereunder, or deprive any of the Beneficiaries of the benefit of the lien of this Indenture on the Mortgaged Property, provided in Section 4.6 above and except that any ----------- indenture supplemental hereto which Grants additional property to the Trustees may Grant such property subject to Permitted Liens; or (e) modify any of the percentages of the unpaid principal amounts of the Notes the consent of the Registered Owners of which are required for any consent or direction hereunder. Section 9.4. Consent of Less Than All Beneficiaries. Except as otherwise --------------------------------------- provided in Section 9.2 and 9.3, indentures supplemental hereto or instruments ----------- --- of waiver with respect hereto may be entered into for any purposes with the consent of the Required Holders. Section 9.5. Exchange; Legend or Notation; Effect. (a) The Company or the ------------------------------------- Indenture Trustee may require that the Notes bear a legend or other notation as to any matter provided for in any indenture supplemental hereto or instrument of waiver in respect hereof, or that new Notes be issued in exchange for the Notes, as provided in Article 2, but modified to conform to any modification effected --------- by such supplemental indenture or waiver. Any such legend, notation or exchange shall, if requested by the Company, be at the cost and expense of the Company, and all legends, notations and modifications shall be in form approved by the Indenture Trustee. (b) The Indenture Trustee may require presentation of the Notes (on at least forty-five days' notice) at the Corporate Trust Office for the purpose of stamping, typing or printing any such legend or notation thereon, or may send stickers bearing such legend or notation to the Beneficiaries. The Beneficiaries shall affix such stickers to the Notes held by them. (c) Upon the execution of any indenture supplemental hereto this Indenture shall be modified in accordance therewith, -64- and such supplemental indenture shall form a part of this Indenture for all purposes; and every Registered Owner of a Note theretofore or thereafter issued and delivered hereunder shall be bound thereby. Section 9.6. Consents in Writing. Any consent of the Beneficiaries ------------------- provided for in this Article 9 shall be embodied in or evidenced by one or any --------- number of concurrent instruments of substantially similar tenor and any such consent Shall become effective when such instrument or instruments are delivered to the Indenture Trustee. Section 9.7. Delivery of Supplements. Promptly after the execution of any ----------------------- indenture supplemental hereto the Company shall mail, first class postage prepaid, a conformed copy of such supplement to the Registered Owner of each Note at the address of such Registered Owner appearing on the Register. Any failure of the Company to give such notice, or any defect therein, Shall not, however, in any way impair or affect the validity of such supplement. ARTICLE 10 GENERAL Section 10.1. Costs and Expenses. The Company agrees to indemnify, defend ------------------ and hold harmless the Trustees and the Beneficiaries and each of their respective officers, directors, employees and agents from and against all loss, claims, damage, liabilities and expense, including without limitation attorneys fees, costs and disbursements, incurred in connection with any action of whatever kind taken in connection with this Indenture or any supplement or amendment hereto or waiver hereunder or any suit or proceeding in or to which the Trustees and the Beneficiaries may be made or become a party, including without limitation suits for the purpose of protecting or perfecting the lien or priority of this Indenture. Section 10.2. Operative Documents. The Company covenants that it will ------------------- timely and fully perform and satisfy all the terms, covenants and conditions applicable to it of any and all Operative Documents. Section 10.3. Security Agreement; Fixture Filing. This Indenture, to the ---------------------------------- extent that it conveys or otherwise deals with personal property or with items of personal property which are or may become fixtures, shall also be construed as a security agreement under the Uniform Commercial Code as in effect in each state in which the Facilities are located, and this Indenture constitutes a financing statement filed as a fixture filing in the Official Records of the County Recorder of the Counties in which such -65- Facilities are located with respect to any and all fixtures included within the term "Mortgaged Property" as used herein and with respect to any Equipment or other personal property that may now be or hereafter become Such fixtures. If any item of Mortgaged Property hereunder also constitutes collateral granted to the Trustees or the Beneficiaries under any other mortgage, agreement, document, or instrument, in the event of any conflict between the provisions of this Indenture and the provisions of such other mortgage, agreement, document, or instrument relating to such collateral, the provision or provisions Selected by the Trustees shall control with respect to such collateral. Section 10.4. Reconveyance. Upon full payment of all indebtedness secured ------------ hereby and satisfaction of all the Obligations in accordance with their respective terms and at the time and in the manner provided, this conveyance shall be null and void, and thereafter, upon demand therefor, an appropriate instrument of reconveyance or release shall promptly be made, at the expense of the Company, by the Trustees to the Company. Section 10.5. Notices. All communications, notices and consents provided ------- for herein shall be in writing and be given in person or by overnight delivery service or by means of telex, facsimile or other wire transmission made before 5:00 P.M., recipient's time, on a Business Day and promptly confirmed by mail (with request for assurance of receipt in a manner typical with respect to communications of that type) or by mail, and shall become effective (w) on delivery if given in person, (x) on the date of transmission if sent by facsimile transmission, (y) the next Business Day if delivered by overnight delivery service, or (z) three Business Days after being deposited in the United States mail, registered or certified mail, return receipt requested, with proper postage prepaid. Notices shall be addressed as follows: If to the Company: Big O Tires, Inc. 11755 East Peakview Avenue Englewood, CO 80111 Attention: Chief Financial Officer Facsimile: (303) 790-0225 With a copy to the Company's General Counsel at the Company's address. If to the Trustees: The Bank of Cherry Creek, N.A. 3033 East First Avenue Denver, Colorado 80206 Attention: Corporate Trust Department Facsimile: (303) 329-9629 -66- or at such other address as any party hereto may from time to designate by notice duly given in accordance with the provisions of this Section to the other parties hereto. Section 10.6. Successors; Gender. All provisions hereof shall bind the ------------------ Company, the Trustees, the Beneficiaries and their respective successors, vendees and assigns and shall inure to the benefit of the Trustees and the Beneficiaries and their respective successors and assigns, and the Company and its permitted successors and assigns. Except as expressly provided herein, the Company hall have no right to assign any of its rights hereunder or in any of the Mortgaged Property. Wherever used, the singular number shall include the plural, the plural the singular, and the use of any gender shall be applicable to all genders. Section 10.7. Care by the Beneficiaries or the Trustees. The Beneficiaries ----------------------------------------- or the Trustees shall be deemed to have exercised reasonable care in the custody and preservation of any of the Mortgaged Property in their possession if any of them take such action for that purpose as the Company requests in writing, but failure of the Beneficiaries or the Trustees to comply with any such request shall not be deemed to be (or to be evidence of) a failure to exercise reasonable care, and no failure of the Beneficiaries or the Trustees to preserve or protect any rights with respect to such Mortgaged Property against prior parties, or to do any act with respect to the preservation of such Mortgaged Property not so requested by the Company, shall be deemed a failure to exercise reasonable care in the custody or preservation of such Mortgaged Property. Section 10.8. No Obligation on the Beneficiaries or the Trustees. This -------------------------------------------------- Indenture is intended only as security for the Obligations. Anything herein to the contrary notwithstanding, (i) the Company shall be and remain liable hereunder and with respect to the Mortgaged Property to perform all of the obligations assumed by the Company under this Indenture or with respect to each thereof, (ii) neither the Beneficiaries nor the Trustees shall have any obligation or liability hereunder or with respect to the Mortgaged Property by reason or arising out of this Indenture other than the obligation of the Trustees to act with respect to the Mortgaged Property as herein provided, and (iii) neither the Beneficiaries nor the Trustees shall be required or obligated in any manner to perform or fulfill any of the obligations of the Company, under, pursuant to or with respect to any of the Mortgaged Property. Section 10.9. No Waiver; Writing. No delay on the part of the Trustees or ------------------ the Beneficiaries in the exercise of any right or remedy shall operate as a waiver thereof, and no single or partial exercise by the Trustees or the Beneficiaries of any right or remedy shall preclude other or further exercise thereof or the -67- exercise of any other right or remedy. The granting or withholding of consent by the Trustees or the Beneficiaries to any transaction as required by the terms hereof shall not be deemed a waiver of the right to require consent to future or successive transactions. Section 10.10. GOVERNING LAW; SEVERABILITY. THIS INDENTURE AND THE NOTES --------------------------- ---------------------------- SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAW OF THE ----------------------------------------------------------------------------- STATE OF COLORADO; PROVIDED, HOWEVER, THAT THE PROVISIONS FOR THE CREATION, --------------------------------------------------------------------------- PERFECTION AND ENFORCEMENT OF THE LIEN AND SECURITY INTEREST CREATED BY THIS ---------------------------------------------------------------------------- INDENTURE IN RESPECT OF ANY FACILITY AND THE FORECLOSURE OR POWER OF SALE ------------------------------------------------------------------------- PROCEDURES SET FORTH IN THIS INDENTURE SHALL BE GOVERNED BY AND CONSTRUED IN ---------------------------------------------------------------------------- ACCORDANCE WITH THE INTERNAL LAW OF THE STATE WHERE THE APPLICABLE FACILITY IS ------------------------------------------------------------------------------ LOCATED. Whenever possible, each provision of this Indenture shall be ------- interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Indenture shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Indenture. Section 10.11. Waiver. The Company, on behalf of the Company, and all ------ Persons now or hereafter interested in any of the Facilities or the Mortgaged Property, to the full extent permitted by applicable law, hereby waives all rights under all appraisement, homestead, moratorium, valuation, exemption, stay, extension, and redemption statutes, laws or equities now or hereafter existing, and hereby further waives the pleading of any statute or limitations as a defense to any and all Obligations secured by this Indenture, and the Company agrees that no defense, claim or right based on any thereof will be asserted, or may be enforced, in any action enforcing or relating to this Indenture or any of the Mortgaged Property. Without limiting the generality of the preceding sentence, the Company, on the Company's own behalf and on behalf of each and every Person acquiring any interest in or title to any Facility subsequent to the date of this Indenture, hereby irrevocably waives any and all rights of redemption from sale under any order or decree of foreclosure of this Indenture or under any power contained herein or therein or under any sale pursuant to any statute, order, decree or judgment of any court. The Company, for itself, and for all Persons hereafter claiming through or under it or who may at any time hereafter become holders of liens junior to the lien of this Indenture, hereby expressly waives and releases all right to direct the order in which any of the Mortgaged Property shall be sold in the event of any sale or sales pursuant hereto and to have any of the Mortgaged Property and/or any other property now or thereafter constituting security for any of the indebtedness secured hereby marshalled upon any foreclosure of this Indenture or of any other security for any of said indebtedness. -68- Section 10.12. No Merger. It being the desire and intention of the parties --------- hereto that this Indenture and the lien hereof do not merge in fee simple title to the Facilities, it is hereby understood and agreed that should the Trustees or any of the Beneficiaries acquire an additional or other interests in or to the Facilities or the ownership thereof, then, unless a contrary intent is manifested by the Trustees as evidenced by an express statement to that effect in an appropriate document duly recorded, this Indenture and the liens hereof shall not merge in the fee simple title, toward the end of this Indenture may be foreclosed as if owned by a stranger to the fee simple title. Section 10.13. Beneficiaries or Trustees Not Joint Venturers or Partners. --------------------------------------------------------- The Company and the Trustees acknowledge and agree that in no event shall the Trustees or any of the Beneficiaries be deemed to be a partner or joint venturer with the Company. Without limitation of the foregoing, none of the Trustees or any of the Beneficiaries shall be deemed to be such a partner or joint venturer on account of its becoming a mortgagee in possession or exercising any rights pursuant to this Indenture or pursuant to any other instrument or document evidencing or securing any of the Obligations secured hereby, or otherwise. Section 10.14. No Third Party Benefits. This Indenture, the Notes and ----------------------- the other Operative Documents included in the Mortgaged Property are made for the sole benefit of the parties thereto, and the Registered Owners of the Notes, and subject to the provisions of Section 10.6, their successors and assigns, and ------------ no other party shall have any legal interest of any kind under or by reason of any of the foregoing. Whether or not the Trustees elect to employ any or all the rights, powers or remedies available to them under any of the foregoing, the Trustees shall have no obligation or liability of any kind to any third party by reason of any of the foregoing or any of the Trustees' actions or omissions pursuant thereto or otherwise in connection with this transaction. Section 10.15. Counterparts. This Indenture may be executed in any number ------------ of counterparts, each of which shall be deemed to be an original but all of which shall constitute one and the same instrument. Section 10.16. Table of Contents; Headings. The table of contents --------------------------- contained herein and the headings of the various Articles, Sections and Schedules herein have been inserted for reference only and shall not to any extent have the effect of modifying or amending the express terms and provisions hereof. Section 10.17. No Impairment. The Company agrees that no other security, ------------- now existing or hereafter taken, for the Obligations shall be impaired or affected in any manner by the execution of this Indenture; no security subsequently taken to -69- secure any of the Obligations shall impair or affect in any manner the security given by this Indenture; all security for the payment of the Obligations shall be taken, considered, and held as cumulative; and the taking of additional security shall at no time release or impair any security by endorsement or otherwise previously given. The Company further agrees that any part of the security herein described may be released without in anyway altering, varying, or diminishing the force, effect, or lien of this Indenture or of any renewal or extension of said lien, and that this Indenture shall continue as a first lien, assignment, and security interest on all the Mortgaged Property not expressly released until all Obligations are fully discharged and paid. Section 10.18. Maximum Interest Payable. No provision of this Indenture or ------------------------ of the Notes shall require the payment or permit the collection of interest in excess of the maximum permitted by applicable law. If any excess of interest in such respect is herein or in the Notes provided for, or shall be adjudicated to be so provided for herein or in the Notes, the Company shall not be obligated to pay such interest in excess of the amount permitted by applicable law, and the right to demand the payment of any such excess shall be and hereby is waived, and this provision shall control any other provision of this Indenture and the Notes. IN WITNESS WHEREOF, the undersigned have executed and delivered this Indenture as of the day and year first above written. TRUSTEES THE BANK CHERRY CREEK, N.A. (SEAL) (Indenture Trustee) By: /s/Douglas R. Dix Attest: /s/Kenneth B. Buckius ------------------------------- ------------------------------ Name: Douglas R. Dix Kenneth B. Buckius Title: Vice President Ass't Secretary /s/Douglas R. Dix ---------------------------------- (Individual Trustee) Name: Douglas R. Dix -70- BIG O TIRES, INC. By:/s/John B. Adams ------------------------------- Name: John B. Adams Title: Executive Vice President BIG O DEVELOPMENT, INC. By:/s/John B. Adams ------------------------------- Name: John B. Adams Title: Vice President BIG O TIRE OF IDAHO, INC. By:/s/John B. Adams ------------------------------- Name: John B. Adams Title: Vice President STATE OF COLORADO) )SS. COUNTY OF Denver ) -------- On this 27th day of April, 1994, before me, the undersigned, a Notary Public in ---- and for said County and State, personally appeared Douglas R. Dix and Kenneth B. Buckius, to me personally known, who, being by me duly sworn did say that they are the Vice President and Assistant Secretary, respectively, of the national association executing the foregoing instrument; that the seal affixed to the said instrument is the seal 0 f the said national association; that said instrument was signed and sealed on behalf of said national association by authority of its Board of Directors; and that the said Douglas R. Dix and Kenneth B. Buckius, as such officers, acknowledged the execution of said instrument to be the voluntary act and deed of the corporation and of the fiduciary, by it, by them and as the fiduciary voluntarily executed. /S/Nicole J. Rice ----------------------------------- Notary Public My Comm. Expires 10/12/97 -71- STATE OF COLORADO) )SS. COUNTY OF Denver ) ------- On this 27th day of April, 1994, before me, the undersigned, a Notary ---- Public in and for the said County and State, personally appeared DOUGLAS R. DIX, to me known to be the identical person named in and who executed the foregoing instrument, and acknowledged that the person, as the fiduciary, executed the instrument as the voluntary act and deed of the person and of the fiduciary. /s/Nicole J. Rice ----------------------------------- Notary Public My Comm. Expires 10/12/97 STATE OF COLORADO ) ) SS. COUNTY OF Arapahoe) -------- On this 27th day of April, 1994, before me, the undersigned, a Notary ---- Public in and for said County and State, personally appeared John B. Adams to me personally known, who, being by me duly sworn did say that he is the Executive Vice President of BIG 0 TIRES, INC.; that the seal affixed to the said instrument is the seal of the said corporation; that said instrument was signed and sealed on behalf of said corporation by authority of its Board of Directors; and that the said John B. Adams, as such officer, acknowledged the execution of said instrument to be the voluntary act and deed of said corporation, by him voluntarily executed. /s/Beth R. Hayne ----------------------------------- Notary Public STATE OF COLORADO ) )SS. COUNTY OF Arapahoe) -------- On 27th day of April, 1994, before me, the undersigned, a Notary Public in ---- and for said County and State, personally appeared John B. Adams to me personally known, who, being by me duly sworn did say that he is the Vice President of BIG 0 DEVELOPMENT, INC.; that the seal affixed to the said instrument is the seal of the said corporation; that said instrument was signed and sealed on behalf of said corporation by authority of its Board of Directors; and that the said John B. Adams, as such officer, acknowledged the execution of said instrument to be the voluntary act and deed of said corporation, by him voluntarily executed. /s/Beth R. Hayne ----------------------------------- Notary Public -72- STATE OF COLORADO ) )SS. COUNTY OF Arapahoe) -------- On this 27th day of April, 1994, before me, the undersigned, a Notary ---- Public in and for said County and State, personally appeared John B. Adams to me personally known, who, being by me duly sworn did say that he is the Vice President of BIG O TIRE OF IDAHO, INC.; that the seal affixed to the said instrument is the seal of the said corporation; that said instrument was signed and sealed on behalf of said corporation by authority of its Board of Directors; and that the said John B. Adams, as such officer, acknowledged the execution of said instrument to be the voluntary act and deed of said corporation, by him voluntarily executed. /s/ Beth R. Hayne ----------------------------------- Notary Public -73- STATE OF COLORADO ) )SS. COUNTY OF ARAPAHOE) On April 27, 1994, before me Robyn S. Brinkley, personally appeared John B. ----------------- Adams known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity, and that by his signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. /s/ Robyn S. Brinkley (Seal) ---------------------------- STATE OF COLORADO) )SS. COUNTY OF Denver ) ------- On April 27, 1994, before me Nicole J. Rice, personally appeared Douglas R. -------------- Dix known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity, and that by his signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. /s/ Nicole J. Rice (Seal) ---------------------------- My Comm. Expires 10/12/97 STATE OF COLORADO) )SS. County of Denver ) ------- On April 27, 1994, before me Nicole J. Rice, personally appeared Kenneth B. -------------- Buckius known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity, and that by his signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. /s/ Nicole J. Rice (Seal) ---------------------------- My Comm. Expires 10/12/97 -73A- SCHEDULE A-1 DESCRIPTION OF VACAVILLE SITE ALL THAT REAL PROPERTY SITUATE IN THE CITY OF VACAVILLE, COUNTY OF SOLANO, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS: PARCEL ONE: PARCEL C, AS SHOWN ON PARCEL MAP FILED 24 NOVEMBER 1981 IN BOOK 22 OF PARCEL MAPS, PAGE 97, SOLANO COUNTY RECORDS. CERTIFICATE OF CORRECTION FOR PARCEL MAP RECORDED JULY 17, 1986 IN BOOK 1986 AT PAGE 75316 AS INSTRUMENT NO. 36974. EXCEPTING AND: SERVING TO GRANTOR HEREIN, ITS SUCCESSORS AND ASSIGNS, ALL OIL, GAS AND OTHER HYDROCARBONS, GEOTHERMAL RESOURCES AS DEFINED IN SECTION 6903 OF THE CALIFORNIA PUBLIC RESOURCES CODE AND ALL OTHER MINERALS, WHETHER SIMILAR TO THOSE HEREIN SPECIFIED OR NOT, WITHIN OR THAT MAY BE PRODUCED FROM SAID REAL PROPERTY, AND FURTHER EXCEPTING TO THE GRANTOR, ITS SUCCESSORS AND ASSIGNS, THE SOLE AND EXCLUSIVE RIGHT FROM TIME TO TIME TO DRILL AND MAINTAIN WELLS OR OTHER WORKS INTO OR THROUGH SAID REAL PROPERTY AND THE ADJOINING STREETS, ROADS AND HIGHWAYS BELOW A DEPTH OF FIVE HUNDRED (500) FEET AND TO PRODUCE, INJECT, STORE AND REMOVE FROM AND THROUGH SUCH WELLS OR WORKS, OIL, GAS, WATER AND OTHER SUBSTANCES OF WHATEVER NATURE, INCLUDING THE RIGHT TO PERFORM BELOW SAID DEPTH BY GRANTOR NECESSARY OR CONVENIENT FOR THE RIGHTS HEREINABOVE EXCEPTED AND RESERVED TO NOT EXCEPT OR RESERVE TO GRANTOR ANY RIGHT OF SAID REAL PROPERTY OR THE FIRST FIVE HUNDRED (500) CONDUCT ANY OPERATIONS THEREON OR THEREIN, AS FEBRUARY 9, 1983 IN BOOK 1983, PAGE 9188, ANY AND ALL OPERATIONS DEEMED EXERCISE OF SUCH RIGHTS. THE GRANTOR 00 NOT INCLUDE AND 00 GRANTOR TO USE THE SURFACE OF FEET BELOW SAID SURFACE OR TO EXCEPTED IN THE DEED RECORDED INSTRUMENT NO. 5020. APN 133-020-540 SCHEDULE A-1 SCHEDULE A-2 DESCRIPTION OF BOISE, IDAHO SITE THE LAND REFERRED TO IN THIS COMMITMENT IS LOCATED IN THE COUNTY OF ADA STATE OF IDAHO AND DESCRIBED AS FOLLOWS: LOT 2, BLOCK 1 OF BROADWAY PLACE SUBDIVISION, ACCORDING TO THE PLAT THEREOF FILED IN BOOK 55 OF PLATS AT PAGES 5009 AND 5010, RECORDS OF ADA COUNTY, IDAHO, AND AS ADJUSTED BY LOT LINE ADJUSTMENT SURVEY RECORDED JANUARY 26, 1989 IN BOOK G OF SURVEYS AT PAGE 1391 UNDER INSTRUMENT NO. 8903690. SCHEDULE A-2 SCHEDULE A-3 DESCRIPTION OF LAS VEGAS SITE DESCRIPTION: THE LAND REFERRED TO HEREIN IS SITUATED IN THE COUNTY OF CLARK, STATE OF NEVADA AND IS DESCRIBED AS FOLLOWS: Being a portion of the SOUTHWEST (SW 1/4) of Section 11, and the NORTHWEST QUARTER (NW 1/4) of Section 14, Township 22 South, Range 62 East, M.D.S. & M., described as follows: COMMENCING AT THE SOUTHWEST CORNER OF LOT 5 OF GIBSON/WARM SPRINGS, A COMMERCIAL SUBDIVISION, THE PLAT OF SAID SUBDIVISION BEING ON FILE IN THE CLARK COUNTY RECORDER'S OFFICE AS BOOK 58, PAGE 82 OF PLATS, SAID POINT ALSO BEING A POINT IN THE WESTERLY RIGHT-OF-WAY LINE OF U.S. HIGHWAY 95; THENCE SOUTH 14 DEG 54'06" EAST ALONG SAID WESTERLY RIGHT-OF-WAY LINE, 1257.00 FEET; THENCE SOUTH 75 DEG. 05'54" WEST, 109.50 FEET TO THE POINT OF BEGINNING; THENCE ALONG A LINE BEING PARALLEL WITH AND 109.50 FEET WESTERLY FROM THE AFOREMENTIONED WESTERLY RIGHT-OF-WAY LINE OF U.S. HIGHWAY 95 THE FOLLOWING TWO (2) COURSES: SOUTH 14 DEG 54'06" EAST, 586.20 FEET; THENCE CURVING TO THE LEFT ALONG THE ARC OF A 3309.50 FOOT RADIUS CURVE CONCAVE NORTHEASTERLY, THROUGH A CENTRAL ANGLE OF 05 DEG 52'33", AN ARC LENGTH OF 339.39 FEET TO A POINT OF NON-TANGENCY TO WHICH A RADIAL LINE BEARS SOUTH 69 DEG 13'21" WEST; THENCE SOUTH 75 DEG 05'54" WEST, 622.38 FEET; THENCE NORTH 14 DEG 54'06" WEST, 955.00 FEET TO A POINT IN THE FUTURE SOUTHERLY RIGHT-OF-WAY LINE OF AMERICAN PACIFIC DRIVE (PROPOSED 60.00 FEET WIDE); THENCE ALONG SAID PROPOSED SOUTHERNLY RIGHT-OF-WAY LINE THE FOLLOWING TWO (2) COURSES: NORTH 75 DEG 05'54" EAST, 575.00 FEET; THENCE CURVING TO THE RIGHT ALONG THE ARC OF A 30.00 FOOT RADIUS CURVE CONCAVE SOUTHWESTERLY, THROUGH A CENTRAL ANGLE OF 90 DEG. 00'00", AN ARC LENGTH OF 47.12 FEET TO THE POINT OF BEGINNING. SCHEDULE A-3 SCHEDULE B-1 PERMITTED LIENS - VACAVILLE 1. GENERAL AND SPECIAL COUNTY AND CITY TAXES FOR THE FISCAL YEAR 1994-95 A LIEN NOT YET DUE OR PAYABLE. 2. GENERAL AND SPECIAL COUNTY AND CITY TAXES FOR THE FISCAL YEAR 1993-4 FIRST INSTALLMENT: $27,243.98 PAID SECOND INSTALLMENT: $27,243.98 PAID CODE AREA: 6064 PARCEL NO.: 133-020-540 ASSESSED VALUES: LAND: $434,203.00 IMPROVEMENTS: $3,523,019 EXEMPTIONS: $NONE TAXPAYER'S NAME: N/A ADDRESS: N/A THE ABOVE INSTALLMENTS INCLUDE THE ANNUAL AMOUNT OF $2,329.14 FOR VV IND PARK SS LANDSCAPE. THE ABOVE INSTALLMENTS INCLUDE THE ANNUAL AMOUNT OF $159.10 FOR VV AND PK DET BASIN. THE ABOVE INSTALLMENTS INCLUDE THE ANNUAL AMOUNT OF $9,693.16 FOR VACA VALLEY INDUSTRIAL PARK. 3. AN ASSESSMENT UNDER THE IMPROVEMENT BOND ACT OF 1915, INSTALLMENTS OF WHICH ARE COLLECTED WITH REGULAR COUNTY TAXES: FOR: FEES DISTRICT NAME: VACA VALLEY INDUSTRIAL PARK BOND NO.: 8613 ASSESSOR PARCEL NO.: 133-020-540 ORIGINAL PRINCIPAL: $93,835.90 4. THE LIEN OF SUPPLEMENTAL TAXES, IF ANY, ASSESSED PURSUANT TO THE PROVISIONS OF CHAPTER 3.5, COMMENCING WITH SECTION 75 OF THE REVENUE AND TAXATION CODE OF THE STATE OF CALIFORNIA. 5. THE HEREIN DESCRIBED LAND IS WITHIN THE BOUNDS OF THE SOLANO IRRIGATION DISTRICT AS ESTABLISHED BY THE BOARD OF SUPERVISORS OF SOLANO COUNTY, CALIFORNIA ON MARCH 8, 1948 AND IS SUBJECT TO ALL TAXES, ASSESSMENTS, OBLIGATIONS AND EASEMENTS, THEREOF, IF ANY. 6. AN EASEMENT FOR THE PURPOSE SHOWN BELOW AND RIGHTS INCIDENTAL THERETO AS SET FORTH IN A DOCUMENT GRANTED TO: PACIFIC GAS AND ELECTRIC COMPANY PURPOSE: ELECTRIC TRANSMISSION LINES RECORDED: MAY 20, 1946 IN BOOK 342 PAGE 277, AS INSTRUMENT NO. 7184, OFFICIAL RECORDS AFFECTS: THE EASTERLY 4 FEET SCHEDULE B-1 7. AN EASEMENT FOR THE PURPOSE SHOWN BELOW AND RIGHTS INCIDENTAL THERETO AS SET FORTH IN A DOCUMENT GRANTED TO: PACIFIC GAS AND ELECTRIC COMPANY, A CALIFORNIA CORPORATION PURPOSE: ELECTRIC TRANSMISSION POLE LINE PURPOSES RECORDED: MAY 20, 1946 IN BOOK 342 PAGE 281, AS INSTRUMENT NO. 7187, OFFICIAL RECORDS AFFECTS: THE WESTERLY 6 FEET 8. AN EASEMENT FOR THE PURPOSE SHOWN BELOW AND RIGHTS INCIDENTAL THERETO AS SET FORTH IN A DOCUMENT GRANTED TO: JAMES W. MAIZE AND ROBERT K. MAIZE PURPOSE: INGRESS AND EGRESS AND FOR RAILWAY LINE RECORDED: MARCH 2, 1978 IN BOOK 1978 PAGE 15893, AS INSTRUMENT NO. 9389, OFFICIAL RECORDS AFFECTS: THE NORTHERLY 40 FEET OF PARCEL ONE 9. LANDSCAPE AND MAINTENANCE AGREEMENT, UPON THE TER.MS AND CONDITIONS CONTAINED THEREIN DATED: NOT SHOWN EXECUTED BY AND BETWEEN: CHEVRON LAND & DEVELOPMENT COMPANY, A DELAWARE CORPORATION AND THE CITY OF VACAVILLE RECORDED: SEPTEMBER 8, 1980 BOOK: 1980 PAGE 62221 INSTRUMENT NO.: 38230 OFFICIAL RECORDS 10.COVENANTS, CONDITIONS AND RESTRICTIONS (BUT DELETING RESTRICTIONS, IF ANY, BASED UPON RACE, COLOR, RELIGION OR NATIONAL ORIGIN) IN THE DECLARATION OF RESTRICTIONS EXECUTED BY: CHEVRON LAND AND DEVELOPMENT COMPANY RECORDED: JULY 31, 1980 BOOK: 1980 PAGE 51986 INSTRUMENT NO.: 32051, OFFICIAL RECORDS WHICH PROVIDE THAT A VIOLATION THEREOF SHALL NOT DEFEAT OR RENDER INVALID THE LIEN OF ANY MORTGAGE OR DEED OF TRUST MADE IN GOOD FAITH AND FOR VALUE. DOES NOT PROVIDE FOR REVERSION OF TITLE IN THE EVENT OF A BREACH THEREOF. 11.AN EASEMENT FOR THE PURPOSE SHOWN BELOW AND RIGHTS INCIDENTAL THERETO AS SHOWN OR AS OFFERED FOR DEDICATION ON THE RECORDED MAP SHOWN BELOW. MAP OF: VACA VALLEY INDUSTRIAL PARK RECORDED: NOVEMBER 24, 1981 IN BOOK 22 OF PARCEL MAPS AT PAGE 97, OFFICIAL RECORDS EASEMENT PURPOSE: PUBLIC UTILITIES AFFECTS: THE EASTERLY 10 FEET, THE NORTHEASTERLY 6 FEET, THE NORTHERLY 15 FEET AND THE SOUTHWESTERLY 15 FEET 12.AN EASEMENT FOR THE PURPOSE SHOWN BELOW AND RIGHTS INCIDENTAL THERETO AS SET FORTH IN A DOCUMENT GRANTED TO: CITY OF VACAVILLE PURPOSE: STORM DRAIN PIPE, PUBLIC UTILITIES, EASEMENTS FOR ROADS & UTILITIES RECORDED: MARCH 20, 1981 IN BOOK 1981 PAGE 19689, AS INSTRUMENT NO. 11434, OFFICIAL RECORDS AFFECTS: THE WESTERLY 20 FEET 13.A LEASE, FOR OCCUPANCY ONLY, TO SIMPSON-DURAVENT, INC. SCHEDULE B-2 PERMITTED LIENS - BOISE 1. GENERAL TAXES FOR THE YEAR 1993, WHICH ARE LIENS, IN THE ORIGINAL SUM OF $ 44,881.66, OF WHICH THE FIRST HALF HAS BEEN PAID. THE SECOND HALF OF WHICH WILL NOT BECOME DELINQUENT UNTIL JUNE 20TH. PARCEL NO. 01 R1088640130 GENERAL TAXES FOR THE YEAR 1993, WHICH ARE LIENS, IN THE ORIGINAL SUM OF $58.67, OF WHICH THE FIRST HALF HAS BEEN PAID. THE SECOND HALF OF WHICH WILL NOT BECOME DELINQUENT UNTIL JUNE 20TH. PARCEL NO. 01 P7PBCRED774 SAID TAXES AFFECT PERSONAL PROPERTY TAXES ONLY. 2. GENERAL TAXES FOR THE YEAR 1994, WHICH ARE LIENS, ARE NOT YET DUE AND PAYABLE. 3. SEWERAGE CHARGES AND SPECIAL ASSESSMENT POWERS OF THE CITY OF BOISE. NO SPECIAL ASSESSMENTS NOW SHOW OF RECORD. 4. LIENS AND ASSESSMENTS OF THE FOLLOWING DISTRICT AND THE RIGHTS AND POWERS THEREOF AS PROVIDED BY LAW. NO DELINQUENCIES APPEAR IN THE COUNTY RECORDER'S OFFICE. DISTRICT: NEW YORK IRRIGATION DISTRICT 5. COVENANTS, CONDITIONS, RESTRICTIONS AND EASEMENTS CONTAINED IN DEED TO THE STATE OF IDAHO, CONVEYING A PORTION OF THE PROPERTY ADJOINING. RECORDED: MAY 12,1964 INSTRUMENT NO.: 583302 AS FOLLOWS: GRANTORS AGREE THAT NO BUILDING OR STRUCTURES, EXCEPT IRRIGATION OR DRAINAGE STRUCTURES, WILL BE PERMITTED TO BE CONSTRUCTED WITHIN 20 FEET OF THE REAL PROPERTY ABOVE DESCRIBED. "GRANTORS FURTHER AGREE THAT NO BILLBOARDS OR OTHER ADVERTISING SIGNS WILL BE PERMITTED CLOSER THAN 100 FEET FROM THE REAL PROPERTY ABOVE DESCRIBED, EXCEPTING SIGNS PERTAINING TO BUSINESS ESTABLISHED ON LANDS ADJACENT TO THE DESCRIBED REAL PROPERTY. "AS A PART OF THE CONSIDERATION HEREINABOVE STATED, THE GRANTORS, BARGAIN, SELL, CONVEY AND RELINQUISH TO THE GRANTEE ALL EXISTING, FUTURE, OR POTENTIAL COMMON LAW OR STATUTORY EASEMENTS OF ACCESS BETWEEN THE RIGHT OF WAY OF THE PUBLIC WAY IDENTIFIED AS F-FG-3022(17), AND ALL OF THE CONTIGUOUS REMAINING REAL PROPERTY OF THE GRANTORS WHETHER ACQUIRING BY SEPARATE CONVEYANCES OR OTHERWISE, OF WHICH THE REAL PROPERTY COVERED BY THIS INSTRUMENT IS A PART, WHERE SAID REMAINING REAL PROPERTY ABUTS ON BOTH SIDES OF THE SAID PUBLIC WAY. "IT IS EXPRESSLY INTENDED THAT THESE COVENANTS, BURDENS AND RESTRICTIONS SHALL RUN WITH THE LAND AND SHALL FOREVER BIND THE GRANTORS, THEIR HEIRS AND ASSIGNS." AFFECTS: THAT PORTION ADJOINING BROADWAY AVE. 6. COVENANTS, CONDITIONS, RESTRICTIONS AND EASEMENTS CONTAINED IN DEED TO THE STATE OF IDAHO, CONVEYING A PORTION OF THE PROPERTY ADJOINING. RECORDED: SEPTEMBER 16,195_ INSTRUMENT NO.: 621450 AS FOLLOWS: GRANTORS AGREE THAT NO BUILDING OR STRUCTURES, EXCEPT IRRIGATION OR DRAINAGE STRUCTURES, WILL BE PERMITTED TO BE CONSTRUCTED WITHIN 20 FEET OF THE REAL PROPERTY ABOVE DESCRIBED. "GRANTORS FURTHER AGREE THAT NO BILLBOARDS OR OTHER ADVERTISING SIGNS WILL BE PERMITTED CLOSER THAN 100 FEET FROM THE REAL PROPERTY ABOVE DESCRIBED, EXCEPTING SIGNS PERTAINING TO BUSINESS ESTABLISHED ON LANDS ADJACENT TO THE DESCRIBED REAL PROPERTY. SCHEDULE B-2 "AS A PART OF THE CONSIDERATION HEREINABOVE STATED, THE GRANTORS, BARGAIN, SELL, CONVEY AND RELINQUISH TO THE GRANTEE ALL EXISTING, FUTURE, OR POTENTIAL COMMON LAW OR STATUTORY EASEMENTS OF ACCESS BETWEEN THE RIGHT OF WAY OF THE PUBLIC WAY IDENTIFIED AS F-FG-3022(17), AND ALL OF THE CONTIGUOUS REMAINING REAL PROPERTY OF THE GRANTORS WHETHER ACQUIRING BY SEPARATE CONVEYANCES OR OTHERWISE, OF WHICH THE REAL PROPERTY COVERED BY THIS INSTRUMENT IS A PART, WHERE SAID REMAINING REAL PROPERTY ABUTS ON BOTH SIDES OF THE SAID PUBLIC WAY. "IT IS EXPRESSLY INTENDED THAT THESE COVENANTS, BURDENS AND RESTRICTIONS SHALL RUN WITH THE LAND AND SHALL FOREVER BIND THE GRANTORS, THEIR HEIRS AND ASSIGNS." AFFECTS: THAT PORTION ADJOINING BROADWAY AVE. 7. COVENANTS, CONDITIONS, RESTRICTIONS AND EASEMENTS CONTAINED IN DEED TO THE STATE OF IDAHO, CONVEYING A PORTION OF THE PROPERTY ADJOINING. RECORDED: MAY 23,1967 INSTRUMENT NO.: 664763 AS FOLLOWS: GRANTORS AGREE THAT NO BUILDINGS OR STRUCTURES, EXCEPT IRRIGATION OR DRAINAGE STRUCTURES, WILL BE PERMITTED TO BE CONSTRUCTED WITHIN 20 FEET OF THE RIGHT OF WAY OF SAID PROJECT, EXCEPT FOR ACCESS ROAD NO. 2 BETWEEN STATIONS 0 +60 AND 5 + 87.28. GRANTORS CONVEYS UNTO THE STATE THE RIGHT TO PROHIBIT JUNKYARDS ON ANY CF THEIR REMAINING LAND WITHIN 1000 FEET OF THE RIGHT OF WAY OF THE SAID PROJECT, AND THE RIGHT TO PROHIBIT ADVERTISING SIGNS, DISPLAYS AND DEVICES WITHIN 660 FEET THEREOF; PROVIDED THAT ADVERTISING RELATING TO BUSINESS CONDUCTED ON ANY OF THE GRANTORS REMAINING LAND BE PERMITTED NOT CLOSER THAN 20 FEET THEREFROM, BUT ONLY ON LAND UTILIZED EXCLUSIVELY FOR SAID BUSINESS. THE 20 FOOT SIGN RESTRICTION DOES NOT APPLY TO ACCESS ROAD NO. 2. SOUTH OF STATION 0+60. AFFECTS: PORTION OF SAID PLAT LYING WITHIN 1000 FEET OF FEDERAL WAY 8. AN EASEMENT CONTAINING CERTAIN TERMS, CONDITIONS AND PROVISIONS AFFECTING A PORTION OF SAID PREMISES AND FOR THE PURPOSES STATED HEREIN. FOR: RIGHT TO CONSTRUCT, OPERATE, MAINTAIN AND REPAIR, SUCH E3BURIED CABLE, UNDERGROUND CONDUIT AND ASSOCIATED FACILITIES FOR THE PROVISION OF COMMUNICATION SERVICES. IN FAVOR OF: THE MOUNTAIN STATES TELEPHONE AND TELEGRAPH COMPANY RECORDED: APRIL 13,1988 INSTRUMENT NO.: 8817203 AFFECTS: THE EASTERLY TEN (10) FEET OF LOTS 1, 2 AND 3, BLOCK 1: THE NORTHERLY TEN (10) FEET OF LOTS 4 AND 5, BLOCK 1 AND THE NORTHWESTERLY TEN (10) FEET OF LOT 6, BLOCK 1 9. COVENANTS, CONDITIONS, RESTRICTIONS AND EASEMENTS AS SET FORTH ON THE FACE OF THE PLAT. SCHEDULE B-3 PERMITTED LIENS - LAS VEGAS AT THE DATE HEREOF, EXCEPTIONS TO COVERAGE IN ADDITION TO THE PRINTED EXCEPTIONS AND EXCLUSIONS CONTAINED IN SAID POLICY OR POLICIES WOULD BE AS FOLLOWS: 1. State, County and City Taxes for the fiscal period of 1993 to 1994, a lien now due and payable in the total amount of $2,148.88 Parcel No. 210-160-005 First installment of $537.88 PD. Second installment of $537.00 PD. Third installment of $537.00 unpaid delinquent first Monday in January. Fourth installment of $537.000 unpaid delinquent first Monday in March (WITH OTHER PROPERTY) State, County and City Taxes for the fiscal period of 1993 to 1994, a lien now due and payable in the total amount of $3,527.79 Parcel No. 210-330-003 First installment of $884.79 PD. Second installment of $881.00 PD. Third installment of $881.00 unpaid delinquent first Monday in January. Fourth installment of $881.00 unpaid delinquent first Monday in March. (WITH OTHER PROPERTY) 1A. The lien of supplemental taxes, if any, assessed pursuant to the provisions of Chapter 361.260 of the NEVADA REVISED STATUTES. 2. PATENT: Mineral rights, reservations, easements and exclusions in the patient from the State of Nevada recorded OCTOBER 15, 1941, in Book 29 of Deeds, pages 90-91 as Document No. 122036 of Official Records. 3. PATENT: Mineral rights, reservations, easements and exclusions in the patient from the State of Nevada recorded OCTOBER 15, 1941, in Book 29 of Deeds, pages 96-97 as Document No. 122045 of Official Records. 4. FINANCING STATEMENT: The effect of a Financing statement to secure an indebtedness of the amount stated herein and any other amounts as may become due under the terms and subject to the terms, covenants, conditions and requirements as contained and imposed therein. Debtor: PIONEER CHLOR ALKALI COMPANY, INC. SCHEDULE B-3 Secured Party : NEDERLANDSCHE MIDDENSTANDSBANK Amount : $NOT DISCLOSED Recorded : OCTOBER 13, 1988 Book No. : 881013 Document No. : 00393, Official Records. ASSIGNMENT: The Beneficial interest of record under said FINANCING STATEMENT was assigned To : TEXAS COMMERCE BANK NATIONAL ASSOCIATION Recorded : OCTOBER 13, 1988 Book No. : 881013 Document No. : 00393, Official Records. AND RE-RECORDED DECEMBER 4, 1990 IN BOOK 901204 AS DOCUMENT NO. 00959, OFFICIAL RECORDS. (WITH OTHER PROPERTY) 5. DEED OF TRUST: A Deed of Trust to secure an indebtedness of the amount stated herein, and any other amounts payable under the terms thereof. Dated : OCTOBER 25, 1988 Amount : $47,000,000.00 Trustor : PIONEER CHLOR ALKALI COMPANY, INC., A DELAWARE CORPORATION Trustee : LAWYERS TITLE INSURANCE CORPORATION Beneficiary : NEDERLANDSCHE MIDDENSTANDSBANK Recorded : OCTOBER 28, 1988 Book : 881028 Document No. : 01504, Official Records. (WITH OTHER PROPERTY) MODIFICATION: An instrument purports to modify the terms of said Deed of Trust as therein provided. Dated : MARCH 29, 1990 Recorded : APRIL 5, 1990 Book : 900405 as Document No. 00292, Official Records. MODIFICATION: An instrument purports to modify the terms of said Deed or Trust as therein provided. Dated : OCTOBER 19, 1990 Recorded : OCTOBER 25, 1990 Book : 901025 as Document No. 00348, Official Records. MODIFICATION: An instrument purports to modify the terms of said Deed of Trust as therein provided. Dated : AUGUST 28, 1992 Recorded : AUGUST 31, 1992 Book : 920831 as Document No. 01355, Official Records. AND RE-RECORDED MARCH 2, 1993 IN BOOK 930302 AS DOCUMENT NO. 00698, OFFICIAL RECORDS. REQUEST FOR NOTICE: A request that copy of any Notice of Default under the terms of the Deed of Trust recorded as Document No. 01504 Mail To : BECKLEY, SINGLETON, DELANOY, JEMISON AND LIST Address : 530 S. LAS VEGAS BLVD. LAS VEGAS, NV 89101 ATTN: BRUCE LESLIE Recorded : NOVEMBER 23, 1992 Book : 921123 Document No. : 00259, of Official Records. REQUEST FOR NOTICE: A request that copy of any Notice of Default under the terms of the Deed of Trust recorded as Document No. 01504 Mail To : SAGUARO POWER COMPANY Address : 18101 VON KARMAN AVENUE, #1700 IRVINE, CA 92715 ATTN: MS. MARIA P. LITOS Recorded : JANUARY 19, 1993 Book : 930119 Document No. : 01087, of Official Records. 6. FINANCING STATEMENT: The effect of a Financing statement to secure an indebtedness of the amount stated herein and any other amounts as may become due under the terms and subject to the terms, covenants, conditions and requirements as contained and imposed therein. Debtor : PIONEER CHLOR ALKALI COMPANY, INC. Secured Party : NEDERLANDSCHE MIDDENSTANDSBANK Amount : $NOT DISCLOSED Recorded : OCTOBER 28, 1988 Book No. : 881028 Document No. : 01505, Official Records. ASSIGNMENT: The Beneficial interest of record under said FINANCING STATEMENT was assigned To : TEXAS COMMERCE BANK NATIONAL ASSOCIATION Recorded : DECEMBER 4, 1990 Book No. : 901204 Document No. : 00936, Official Records. 7. EASEMENT: An easement affecting the portion of said land, and for the purposes stated herein, and incidental purposes. In Favor Of : COUNTY OF CLARK For : PERPETUAL AVIGATION Recorded : MARCH 20, 1989 Book No. : 890320 Document No. : 00553, Official Records. 8. SURVEY: The effect of the following Record of Survey: Performed By : NELSON E. MYER File : 51 Page No. : 86 Recorded : JUNE 16, 1989 Book No. : 890616 Document No. : 00582, Official Records. 9. SURVEY: The effect of the following Record of Survey: Performed By : NELSON E. MYER File : 52 Page No. : 9 Recorded : JULY 26, 1989 Book No. : 890726 Document No. : 00701, Official Records. 10. DEED OF TRUST: A Deed of Trust to secure an indebtedness of the amount stated herein, and any other amounts payable under the terms thereof. Dated : OCTOBER 19, 1990 Amount : $15,000,000.00 Trustor : PIONEER CHLOR ALKALI COMPANY, INC., A DELAWARE CORPORATION Trustee : LAWYERS TITLE INSURANCE CORPORATION Beneficiary : NMB POSTBANK GROEP NV, NEW YORK BRANCH Recorded : OCTOBER 22, 1990 Book : 901022 Document No. : 00407, Official Records. LEASE: An unrecorded lease affecting the premises therein stated, executed by and between the parties named herein, for the terms and upon and subject to all of the terms, covenants, and provisions contained therein; Dated : AUGUST 28, 1992 Lessor : PIONEER CHLOR ALKALI COMPANY, INC., A DELAWARE CORPORATION Lessee : SAGUARO POWER COMPANY, A LIMITED PARTNERSHIP, A CALIFORNIA LIMITED PARTNERSHIP Term : NOT DISCLOSED Disclosed By: : NON-DISTURBANCE AND ATTORNMENT AGREEMENT Recorded : AUGUST 31, 1992 Book : 920831 Document No. : 01356, Official Records. THE ABOVE UNRECORDED LEASE PURPORTS TO AFFECT PROPERTY OTHER THAN THE PROPERTY IN QUESTION CONTAINED HEREIN. REQUEST FOR NOTICE: A request that copy of any Notice of Default under the terms of the Deed of Trust recorded as Document No. 00407 Mail To : BECKLEY, SINGLETON, DELAONY, JEMISON & LIST Address : 530 S. LAS VEGAS BLVD. LAS VEGAS, NV 89101 ATTN: BRUCE LESLIE Recorded : NOVEMBER 23, 1992 Book : 921123 Document No. : 00260, of Official Records. REQUEST FOR NOTICE: A request that copy of any Notice of Default under the terms of the Deed of Trust recorded as Document No. 00407 Mail To : SAGUARO POWER COMPANY Address : 18101 VAN KARMAN AVENUE, #1700 IRVINE, CA 92715 ATTN: MS. MARIA P. LITOS Recorded : JANUARY 19, 1993 Book : 930119 Document No. : 01086, of Official Records. 11. FINANCING STATEMENT: The effect of a Financing statement to secure an indebtedness of the amount stated herein and any other amounts as may become due under the terms and subject to the terms, covenants, conditions and requirements as contained and imposed therein. Debtor : PIONEER CHLOR ALKALI COMPANY, INC. Secured Party : NMB POSTBANK GROEP, NV, NEW YORK BRANCH Amount : $NOT DISCLOSED Recorded : OCTOBER 22, 1990 Book No. : 901022 Document No. : 00408, Official Records. MODIFICATION: An instrument purports to modify the terms of said FINANCING STATEMENT as therein provided. Recorded : DECEMBER 12, 1990 Book : 901212 as Document No. 00899, Official Records. 12. FINANCING STATEMENT: The effect of a Financing statement to secure an indebtedness of the amount stated herein and any other amounts as may become due under the terms and subject to the terms, covenants, conditions and requirements as contained and imposed therein. Debtor : PIONEER CHLOR ALKALI COMPANY, INC. Secured Party : TEXAS COMMERCE BANK NATIONAL ASSOCIATION Amount : $NOT SET OUT Recorded : DECEMBER 17, 1990 Book No. : 901217 Document No. : 00198, Official Records. 13. DECLARATION OF RESTRICTIONS: Covenants, conditions and restrictions (but deleting restrictions, if any, based upon race, color, religion, or national origin) as contained in a Declaration of Restrictions recorded OCTOBER 20, 1992, in Book 921020, as Document No. 01050, Official Records. THE ABOVE COVENANTS, CONDITIONS AND RESTRICTIONS WERE EXECUTED BY BASIC MANAGEMENT, INC. EASEMENT: An easement affecting the portion of said land, and for the purposes stated herein, and incidental purposes. In Favor Or : NEVADA POWER COMPANY For : POWER LINES Recorded : TO BE DETERMINED Affects : NORTHWEST 50 FEET AND EASTERLY 50 FEET SCHEDULE C FORM OF NOTE SCHEDULE C ---------- THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD OR TRANSFERRED ABSENT REGISTRATION UNDER THE ACT OR AN EXEMPTION THEREFROM. BIG O TIRES, INC. 8.71% SENIOR SECURED NOTE DUE 2004 No. R-________________ $ ____________________ April 29, 1994 PPN___________________ BIG O TIRES, INC., a Nevada corporation (the "Company"), for value received, hereby promises to pay to ________________________________________, or its registered assigns, the principal sum of ____________ DOLLARS ($______) (or so much thereof as shall not have been prepaid) in accordance with the Indenture and to pay interest on the unpaid principal amount hereof from the date hereof at the rate of 8.71% per annum (the "Note Rate"), such interest payable quarterly on August first, November first, February first and May first in each year until such principal amount shall have become due and payable (whether at maturity, upon notice of prepayment or otherwise), and to pay interest on any overdue principal and premium, if any, and (to the extent not prohibited by applicable law) on interest at the Overdue Rate, as below defined, in each case computed on the basis of a 360-day year of twelve 30-day months. The "Overdue Rate" shall be the rate per annum equal to the lesser of (a) 4.0% per annum above the Note Rate; and (b) the maximum non-usurious rate from time to time permitted by applicable law to be contracted for, or charged to, or received from the Person involved. Such principal, premium, if any, and interest shall be payable upon presentation of this Note (except as provided in Section 2.2 of the Indenture referred to below, such payment to be made as therein provided) at the corporate trust office of The Bank of Cherry Creek, N.A., or of the office of its successor as Indenture Trustee under the Indenture referred to below, in lawful money of the United States of America. This Note is one of the Company's 8.71% Senior Secured Notes due 2004 (the "Notes"), all issued pursuant to and equally and ratably secured by the Indenture, Mortgage, Deed of Trust, Security Agreement, and Financing Statement (Fixture Filing) dated as of April 27, 1994 (together with all amendments and supplements thereto, the "Indenture"), from the Company to The Bank of Cherry Creek, N.A., as Indenture Trustee, and Douglas R. Dix, as Individual Trustee (together the "Trustees"). Reference is hereby made to the Indenture for a description of the Mortgaged Property thereby pledged and assigned, the nature and extent of the security for the Notes, the rights of the registered owners of the Notes and the Trustees, in respect of and the terms upon which the Notes are authenticated and delivered. The principal of this Note is subject to mandatory prepayment from time to time, in the manner and under the circumstances set forth in the Indenture. The Company may at its election prepay this Note in whole or in part and the maturity hereof may be accelerated following an Event of Default, all as provided in the Indenture, to which reference IB made for the terms and conditions of such provisions as to prepayment and acceleration, including without limitation the payment of a make whole premium amount in connection therewith. This Note is issuable only as a fully registered Note. The Company and the Trustees shall deem and treat the person in whose name this Note is registered on the Register (as defined in the Indenture) as the absolute owner hereof (whether or not this Note shall be overdue) for the purpose of receiving payments of principal, premium and interest and for all other purposes, and neither the Company nor the Trustees shall be affected by any notice to the contrary. In accordance with the provisions of the Indenture, this Note may be transferred on the Register at the Registry Office (as defined in the Indenture), and exchanged for a Note or Notes of other denominations in accordance therewith. Should the indebtedness represented by this Note or any part thereof be collected at law or in equity or in bankruptcy, receivership or other court proceeding or should this Note be placed in the hands of attorneys for collection after default, the Company agrees to pay, in addition to the principal, premium, if any, and interest due and payable hereon, and to the extent permitted by applicable law, all costs of collecting or attempting to collect this Note, including reasonable attorneys, fees and expenses (including those incurred in connection with any appeal). This Note shall be governed by and construed in accordance with the laws of the State of Colorado. This Note shall not be valid until the Certificate of Authentication hereon shall have been signed by The Bank of Cherry Creek, N.A., as Indenture Trustee. ------------------------------ IN WITNESS WHEREOF, the Company has caused this note to be duly executed. BIG O TIRES, INC. By ----------------------------- Name: John B. Adams Title: Executive Vice President -2- CERTIFICATE OF AUTHENTICATION This Note is one of-the 8.71% Senior Secured Notes due 2004 described in the within-mentioned Indenture. The Bank of Cherry Creek, N.A. as Indenture Trustee By------------------------------ Douglas R. Dix, Vice President -3- EXHIBIT B Form of Subsidiary Guaranty EXHIBIT B [FORM OF SUBSIDIARY GUARANTY] GUARANTY dated as of April 27, 1994, made by the Subsidiaries listed on the signature pages hereof (each a "Guarantor" and collectively the "Guarantors"), --------- ---------- in favor of the original purchasers of the Notes referred to below and the holders from time to time of said Notes and the Trustees under the Indenture referred to below (collectively the "Obligees"). -------- WHEREAS, Big O Tires, Inc. (the "Company") has entered into a Note ------- Purchase Agreement dated as of April 27, 1994 (as amended or otherwise modified from time to time, the "Note Purchase Agreement") with the institutional ----------------------- purchasers listed in Schedule I thereto, providing for the sale by the Company of $8,000,000 aggregate principal amount of its 8.71% Senior Secured Notes due 2004 (the "Notes"); and WHEREAS, the Notes are being issued under and secured by an Indenture, Mortgage, Deed of Trust, Security Agreement and Financing Statement (Fixture Filing) dated as of April 27, 1994, made by the Company to The Bank of Cherry Creek, N.A., as Indenture Trustee, and Douglas R. Dix, as individual trustee (as amended or otherwise modified from time to time, the "Indenture", and terms --------- defined in the Indenture and not otherwise defined herein are being used herein as so defined); and WHEREAS, it is a condition precedent to the purchase of Notes by such purchasers under the Note Purchase Agreement that each Guarantor shall have executed and delivered this Guaranty; and WHEREAS, this Guaranty is secured by the Indenture. NOW, THEREFORE, in consideration of the premises each Guarantor hereby agrees as follows: SECTION 1. Guaranty. Each Guarantor, jointly and severally, -------- unconditionally and irrevocably guarantees the punctual payment when due, whether at stated maturity, by acceleration or otherwise, of all obligations of the Company arising under the Notes, the Note Purchase Agreement and the Indenture, including all extensions, modifications, substitutions, amendments and renewals thereof, whether for principal, interest (including, without limitation, interest accruing or becoming owing both prior to and subsequent to the commencement of any proceeding against or with respect to the Company under any chapter of the Bankruptcy Code of 1978, 11 U.S.C. (Section) 101 et seq.), make-whole premium amount, fees, expenses, indemnification or otherwise (all such obligations are called the "Guaranteed Obligations"); provided, however, ---------------------- that the aggregate liability of each Guarantor hereunder in respect of the Guaranteed Obligations shall not exceed at any time the Maximum Amount (as hereinafter defined) for such Guarantor. As used herein, the term "Maximum Amount" means, -------------- for each Guarantor, the lesser of (a) the amount of the Guaranteed Obligations and (b) the maximum amount for which such Guarantor is liable under this Guaranty without such liability being deemed a fraudulent transfer under applicable Debtor Relief Laws (as hereinafter defined), as determined by a court of competent jurisdiction As used herein, the term "Debtor Relief Laws" means ------------------ any applicable liquidation, conservatorship, bankruptcy, moratorium, rearrangement, insolvency, reorganization or similar debtor relief laws affecting the rights of creditors generally from time to time in effect. Each Guarantor, jointly and severally, also agrees to pay, in addition to the amount stated above, any and all expenses (including reasonable counsel fees and expenses) incurred by any Obligee in enforcing any rights under this Guaranty. SECTION 2. Guaranty Absolute. Each Guarantor guarantees that the ----------------- Guaranteed Obligations will be paid strictly in accordance with the terms of the Notes, the Note Purchase Agreement and the Indenture, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of any Obligee with respect thereto. The obligations of the Guarantors under this Guaranty are independent of the Guaranteed Obligations, and a separate action or actions may be brought and prosecuted against each Guarantor to enforce this Guaranty, irrespective of whether any action is brought against the Company or any other Guarantor or any other Person liable for the Guaranteed Obligations or whether the Company or any other Guarantor or any other such Person is joined in any such action or actions. The liability of each Guarantor under this Guaranty shall be absolute, irrevocable, and unconditional irrespective of: A. any lack of validity or enforceability of any Guaranteed Obligation, any Note, the Note Purchase Agreement, the Indenture or any agreement or instrument relating thereto; B. any change in the time, manner or place of payment of, or in any other term of, all or any of the Guaranteed Obligations, or any other amendment or waiver of or any consent to departure from any Note, the Note Purchase Agreement or the Indenture; C. any taking, exchange, release or non-perfection of any collateral, or any taking, release or amendment or waiver of or consent to departure by any Guarantor or other Person liable, or from any other guaranty, for all or any of the Guaranteed Obligations; -2- D. any manner of application of collateral, or proceeds thereof, to all or any of the Guaranteed Obligations, or any manner of sale or other disposition of any collateral or any other assets of the Company or any of its Subsidiaries; E. any change, restructuring or termination of the corporate structure or existence of the Company or any of its Subsidiaries; or F. any other circumstance (including, without limitation, any statute of limitations) that might otherwise constitute a defense, offset or counterclaim available to, or a discharge of, the Company or a Guarantor. This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Guaranteed Obligations is rescinded or must otherwise be returned by any Obligee, or any other Person upon the insolvency, bankruptcy or reorganization of the Company or otherwise, all as though such payment had not been made. Should any Guarantor become insolvent, fail to pay its debts generally as they become due, voluntarily seek, consent to, or acquiesce in the benefits of any Debtor Relief Law or become a party to or be made the subject of any proceeding provided for by any Debtor Relief Law (other than as a creditor or claimant) that could suspend or otherwise adversely affect the rights of any Obligee hereunder, then, the Guaranteed Obligations shall be, as between such Guarantor and the obligees, a fully matured, due, and payable obligation of such Guarantor to the Obligees (without regard to whether the Company is then in default under the Indenture), payable in full by such Guarantor to the Obligees upon demand, which shall be the estimated amount owing in respect of the contingent claim created hereunder. SECTION 3. Waivers. Each Guarantor hereby irrevocably waives, to the ------- extent permitted by applicable law: A. promptness, diligence, presentment, notice of acceptance and any other notice with respect to any of the Guaranteed Obligations an this Guaranty; B. any requirement that, any Obligee, or any other Person protect, secure, perfect or insure any Lien or any property subject thereto or exhaust any right or take any action against the Company, any other Guarantor or any other Person or any collateral; -3- C. all right to trial by jury in any action, proceeding or counterclaim arising out of or relating to any of the Notes, the Note Purchase Agreement, the Indenture or the transactions contemplated thereby; D. any defense, offset or counterclaim arising by reason of any claim or defense based upon any action by any Obligee; E. any duty on the part of any Obligee to disclose to such Guarantor any matter, fact or thing relating to the business, operation or condition of any Person and its assets now known or hereafter known by such Person; and F. any rights by which it might be entitled to require suit on an accrued right of action in respect of any of the Guaranteed Obligations or require suit against the Company or any Guarantor or any other Person. SECTION 4. Subordination of Subrogation. Each Guarantor, irrevocably, ---------------------------- unconditionally and whether or not the Guaranteed Obligations have been indefeasibly paid in full, hereby agrees that all rights it may have to be subrogated to the rights of any Obligee or any other Beneficiary against the Company, and all other remedies that it may have against the Company, any other Guarantor, or any obligor on the Guaranteed Obligations or any other security, in respect of which any payment is made under the Notes, the Note Purchase Agreement or the Indenture including all extensions, modifications, substitutions, amendments and renewals thereof, or under this Guaranty (the "Guarantor Subrogation Rights") shall be and hereby are subordinated in right of payment to all other obligations of the Company to all other persons, whether now existing or created hereafter. If any such amount shall be paid to a Guarantor on the account of any Guarantor Subrogation Rights, notwithstanding the subordination provisions hereof, such amount shall be received in trust for the benefit of the Obligees and shall be forthwith paid to the Trustees to be credited and applied upon the Guaranteed Obligations, whether matured or unmatured, in accordance with the terms of the Indenture. The provisions of this Section 4 shall survive the termination of this Guaranty, and any satisfaction and discharge of the Company by virtue of any payment, court order, or law. SECTION 5. Representations and Warranties. Each Guarantor hereby severally ------------------------------ represents and warrants as to itself as follows: A. Such Guarantor is a corporation duly organized, validly existing and in good standing under the laws of the state of its organization. The execution, delivery and performance of this Guaranty have been duly authorized by all necessary action on the part of such Guarantor. -4- B. The execution, delivery and performance by such Guarantor of this Guaranty will not (i) contravene, result in any breach of, or constitute a default under, or result in the creation of any Lien in respect of any property of such Guarantor under any indenture, mortgage, deed of trust, bank loan or credit agreement, corporate charter or by-laws, or any other agreement or instrument to which such Guarantor is a party or by which such Guarantor or any of its properties may be bound or affected, (ii) conflict with or result in a breach of any of the terms, conditions or provisions of any Order of any court, arbitrator or Governmental Body applicable to such Guarantor or (iii) violate any provision of any Statute or any rule or regulation of any Governmental Body applicable to such Guarantor. C. Such Guarantor is, individually and together with its Subsidiaries, solvent. D. Such Guarantor and the Company are members of the same consolidated group of companies and are engaged in related businesses and such Guarantor will derive substantial direct and indirect benefit from the execution and delivery of this Guaranty. As used in this Guaranty, the term "Governmental Body" includes any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign; and the term "Order" includes any order, writ, injunction, decree, judgment, award, determination, direction or demand. SECTION 6. Amendments, Etc. No amendment or waiver of any provision of --------------- this Guaranty and no consent to any departure by any Guarantor therefrom shall in any event be effective unless the same shall be in writing and signed by the Required Holders, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment, waiver or consent shall, unless in writing and signed by all Obligees, (i) limit the liability of, or release, any Guarantor hereunder, (ii) postpone any date fixed for, or change the amount of, any payment hereunder or (iii) change the percentage of Notes the holders of which are, or the number of Obligees, required to take any action hereunder. SECTION 7. Addresses for Notices. All notices and other communications --------------------- provided for hereunder shall be in writing and shall be sent by confirmed facsimile transmission (with hard copy sent by first class mail) or delivered by hand or sent by a reputable overnight courier service prepaid (with confirmation of receipt), if to any Guarantor addressed to it at the address of such -5- Guarantor set forth below their name on the signature page of this Guaranty, if to any Noteholder, addressed to it at the address of such Noteholder specified in Schedule I to the Note Agreement, or as to each party at such other address as shall be designated by such party in a written notice to each other party complying as to delivery with the terms of this Section. Any notice or other communication herein provided to be given to the holders of all outstanding Notes shall be deemed to have been duly given if sent as aforesaid to each of the registered holders of the Notes at the time outstanding at the address for such purpose of such holder as it appears on the Note Register. SECTION 8. No Waiver; Remedies. No failure on the part of any Obligee to ------------------- exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 9. Continuing Guaranty, Etc. This Guaranty is a continuing ------------------------ guaranty of payment and performance and shall (A) remain in full force and effect until payment in full of the Guaranteed Obligations and all other amounts payable under this Guaranty, (B) be binding upon each Guarantor, its successors and assigns and (C) inure to the benefit of and be enforceable by Obligees, and their successors, transferees and assigns. No Guarantor may assign its rights, obligations or duties hereunder without the prior written consent of all of the Obligees. SECTION 10. Subordination of the Obligations of the Company to the ------------------------------------------------------ Guarantors. Each Guarantor hereby expressly covenants and agrees for the ---------- benefit of each Obligee that all obligations and liabilities of the Company to such Guarantor of whatsoever description, including, without limitation, all intercompany receivables of such Guarantor from the Company (collectively, the "Subordinated Debt"), shall be subordinated and junior in right of payment to ----------------- the Guaranteed Obligations. Following the occurrence of an Event of Default, no payment shall be made with respect to the Subordinated Debt unless and until the Guaranteed Obligations shall have been paid in full; provided, however, if, notwithstanding such prohibition of payment after the occurrence of an Event of Default payments with respect to the Subordinated Debt are collected and received by such Guarantor, such payments shall be received in trust for the Obligees, and shall be forthwith paid over to the Indenture Trustee on account of the Guaranteed obligations but without reducing or affecting in any manner the liability of such Guarantor under this Guaranty. SECTION 11. Counterparts. This Guaranty may be executed in any number of ------------ counterparts, all of which taken together shall -6- constitute one and the same instrument, but in making proof of this Agreement, it shall not be necessary to produce or account for more than one such counterpart. SECTION 12. Governing Law. This Guaranty shall be governed by and ------------- construed in accordance with the laws of the State of Colorado. IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be duly executed and delivered as of the date first above written. BIG O DEVELOPMENT, INC. By:_____________________________ Name: John B. Adams Title: Vice President Address for Notices: 11755 East Peakview Avenue Englewood, Colorado 80111 BIG O TIRE OF IDAHO, INC. By:______________________________ Name: John B. Adams Title: Vice President Address for Notices: 11755 East Peakview Avenue Englewood, Colorado 80111 -7- EXHIBIT C Form of Opinion of Counsel to the Company [Form of Opinion of Counsel to the Company and Guarantors] April 29, 1994 To the several Purchasers listed on Schedule I to the Note Purchase Agreement referred to below Re: Big O Tires, Inc. 8.71% Senior Secured Notes due 2004 Ladies and Gentlemen: We have acted as counsel for Big O Tires, Inc. (the "Company") and for its subsidiaries Big O Development, Inc., and Big O Tire of Idaho, Inc. (together, the "Guarantors") in respect of the sale by the Company of $8,000,000 aggregate principal amount of its 8.71% Senior Secured Notes due 2004 (the "Notes") under the Note Purchase Agreement dated as of April 27, 1994 between you and the Company (the "Note Purchase Agreement"). The Notes are being issued under and secured by an Indenture, Mortgage, Deed of Trust, Security Agreement and Financing Statement (Fixture Filing) (the "Indenture"), made by the Company as of April 27, 1994 to The Bank of Cherry Creek, N.A., as Indenture Trustee, and Douglas R. Dix, as Individual Trustee (collectively, the "Trustees"). Terms defined in the Indenture are used herein as so defined except as otherwise defined herein. In our capacity as such counsel, we have reviewed the following documents: A. The Note Purchase Agreement dated April 27, 1994; B. The Indenture dated April 27, 1994; C. The Notes dated April 29, 1994; D. The Subsidiary Guaranty dated April 27, 1994; and E. The UCC-1 Financing Statements naming the Company and the Guarantors as Debtor and the Indenture Trustee as Secured Party. All of the above-referenced documents shall hereinafter be collectively referred to as the "Loan Documents." In all such reviews, we have assumed the genuineness of all signatures on the Loan Documents (other than those of the Company and the Guarantors), the authenticity of all documents submitted to us as originals, and the conformity to originals of all documents submitted to us as copies thereof. When reference is made in this opinion to "the best of our knowledge", or words of similar effect, it means the actual present knowledge of those partners and associates presently with our firm who have represented the Company and the Guarantors in this transaction. Our opinions set forth below as to enforceability of certain of the Loan Documents are subject to the effect of bankruptcy, reorganization, insolvency, fraudulent conveyance, and other laws of general application relating to or affecting the enforcement of creditors, rights, and (ii) principles of equity. On the basis of our review of the Loan Documents, and such other matters as we deem relevant, and as a result of our consideration Of Such questions of law as we deem relevant, and Subject to the qualifications set forth herein, we are of the opinion that: 1. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada and has the corporate power and authority to own the property it purports to own or hold under lease and to carry on its business as now conducted and as proposed to be conducted immediately after giving effect to the consummation of the transactions contemplated by the Loan Documents, to enter into such transactions and to execute and deliver the Loan Documents to which it is a party and to observe and perform the provisions thereof. 2. Each of the Guarantors is a corporation duly organized, validly existing and in good standing under the laws of the state of its organization and has the corporate power and authority to own the property it purports to own or hold under lease and to carry on its business as now conducted and as proposed to be conducted. 3. The Company is duly qualified as a foreign corporation and authorized to do business in the States of Colorado, Idaho, Nevada and California and in each other jurisdiction in which the character of the properties owned or held under lease by the Company or the nature of the business conducted by the Company requires such qualification. 4. The Note Purchase Agreement has been duly authorized, executed and delivered by the Company and the Guarantors and constitutes a legal, valid and binding agreement of each of the Company and the Guarantors, enforceable against the Company and the Guarantors in accordance with its terms. -2- 5. The Indenture has been duly authorized, executed and delivered by the Company and the Guarantors and constitutes a legal, valid and binding agreement of the Company and the Guarantors, enforceable against the Company and the Guarantors in accordance with its terms. 6. The Notes have been duly authorized, executed and delivered by the Company, and constitute legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their terms; and the Notes are entitled to the benefits and security afforded by the Indenture and the Subsidiary Guaranty in accordance with their terms and the terms of the Indenture and the Subsidiary Guaranty. 7. The Subsidiary Guaranty has been duly authorized, executed and delivered by each of the Guarantors and constitutes a legal, valid and binding agreement of each of such guarantors, enforceable against each of such Guarantors in accordance with its terms. 8. No consent, approval or authorization of, or registration, filing or declaration with, any Governmental Body is required for the validity of the execution and delivery or the performance by the Company or the Guarantors of any of the Loan Documents. 9. The use of the proceeds from the sale of the Notes will not be used, directly or indirectly, for the purpose of buying or carrying any margin stock within the meaning of Regulation G of the Board of Governors of the Federal Reserve System (12 CFR 207), or for the purpose of buying or carrying or trading in any securities under such circumstances as to involve the Company in a violation of Regulation X Of Said Board (12 CFR 224) or any broker or dealer in a violation of Regulation T of said Board (12 CFR 220). 10. Under existing law, the Notes are not subject to the registration requirements under the Securities Act of 1993, as amended, and the Company is not required to qualify an indenture under the Trust Indenture Act of 1939, as amended. 11. Neither the execution and delivery of the Note Purchase Agreement, the Indenture, the Subsidiary Guaranty or the Notes delivered to you today, the consummation of the transactions contemplated thereby, nor compliance with the terms and conditions thereof, will (a) conflict with or result in a breach of, or constitute a default under, any of the terms, obligations, covenants, conditions or provisions or any indenture, mortgage, deed of trust, bank loan or credit agreement, corporate charter or bylaw or any other agreement or instrument to which the Company or any of its Subsidiaries is a party, or result in the creation or imposition of any Lien (other than the Liens created by the -3- Indenture) upon any property or asset of the Company or any of its Subsidiaries under the terms or provisions of any of the foregoing, or (b) to the best of our knowledge, violate any law, rule or regulation or order of any court, arbitrator or Governmental Body applicable to the Company or either of the Guarantors. 12. To the best of our knowledge, (a) there are no actions, suits or proceedings (including counterclaims) pending against or affecting the Company or the Guarantors in any court or before any arbitrator, or any property of the Company or the Guarantors, or before or by any Governmental Body, except actions, suits or proceedings identified on Schedule I hereto; and (b) none of such actions, suits or proceedings challenges the validity of the Loan Documents or the Notes. This opinion may not be used or relied upon by any person or entity other than (i) you and your counsel, (ii) the Trustees (and their successors), and (iii) transferees of the Notes, or in any other connection, and is not to be quoted in whole or in part in any letter or document without our prior written consent except in connection with court proceedings related to this transaction where relevant to such proceeding. Respectfully Submitted, -4- EXHIBIT D Form of Opinion of Special Nevada, California, Idaho Counsel for the Company [Form of Opinion of Special Counsel to the Company and Guarantors (Idaho, Calif., Nevada)] April 29, 1994 To Each of the Purchasers Listed on Schedule I of the Note Purchase Agreement described below Re: BIG O TIRES, INC. (the "Company") 8.71% Senior Secured Notes Due 2004 Ladies and Gentlemen: We have acted as counsel in the State of [Idaho; California; Nevada) (the "State") to Big O Tires, Inc. (the "Company"), Big O Development, Inc. and Big O Tire of Idaho, Inc. (together, the "Guarantors") in connection with your purchase of various 8.71% senior secured promissory notes (the "Notes"), in the aggregate principal amount of $8,000,000.00, executed by the Company pursuant to a certain Note Purchase Agreement between you and the Company dated as of April 27, 1994 (the "Note Purchase Agreement"). The Notes are being issued under and secured by a certain Indenture, Mortgage, Deed of Trust, Security Agreement and Financing Statement (Fixture Filing), executed by the Company as of April 27, 1994 (the "Indenture"), to The Bank of Cherry Creek, N.A., as the "Indenture Trustee" and Douglas R. Dix, as the "Individual Trustee" (the "Trustees"). This opinion is being rendered pursuant to Section 4.G. of the Note Purchase Agreement. Capitalized terms used in this opinion and not otherwise defined shall have the meanings set forth in the Note Purchase Agreement. We have reviewed the Notes, the Indenture, the Subsidiary Guaranty to be executed by the Guarantors (the "Subsidiary Guaranty") and the UCC-1 Financing Statement naming each of the Company and the Guarantors as Debtor and the Trustees as Secured Party (the "UCC-1 Financing Statements"). In rendering this opinion, we have assumed the genuineness of all signatures on original documents, the authenticity of all documents submitted to us as originals and the conformity to original documents of all copies submitted to us. It is our opinion, with respect to the laws of the State, that: 1. The Indenture is a legal, valid and binding agreement constituting a valid lien on, and security interest with respect to, the Mortgaged Property (as defined in the Indenture) located within the State. 2. The Indenture is enforceable in accordance with its terms, except as such enforcement may be limited or qualified by (i) bankruptcy, reorganization, insolvency, fraudulent conveyance and other laws of general application relating to or affecting the enforcement of creditors, rights, (ii) principles of equity, and (iii) other applicable laws of the State, none of which laws will materially interfere with the practical realization of the benefits and the security purported to be provided by the Indenture. 3. (a) The Indenture must be recorded in the following public offices in the State in order to perfect and preserve the liens and security interests in real property and fixtures purported to be created thereby: [_____________]. (b) Except as set forth in paragraph 3 (a) above, no other documents need to be recorded, registered or filed in order to publish notice and to protect the validity of the Indenture. (c) It is not necessary, prior to the maturity of the Notes, to re-record, re-register or refile the Indenture, in order to maintain such liens of record. 4. The Indenture is in satisfactory form to record, register or file the Indenture in any office referred to in paragraph 3(a) above, and need not bear a scrivener's statement or be accompanied by affidavits, county clerk certificates, certified resolutions or other certificates. The form of acknowledgement that is attached to the Indenture is in form acceptable for recording in the State. 5. There will be only nominal filing fees payable upon the recording, registration or filing of the Indenture in the State. 6. It is necessary to file the UCC-1 Financing Statement in the Office of the Secretary of State of the State under the provisions of the Uniform Commercial Code in effect in the State in order to perfect a security interest in any tangible personality which does not constitute a fixture. The security interest granted in the Indenture in personal property which security interest may be perfected by the filing of a financing statement in the State, will be perfected upon the filing of the UCC-1 Financing Statements with the Secretary of State of the State. -2- 7. It is not necessary to obtain the consent, authorization or approval of any governmental authority of the State in connection with the execution and delivery of, or performance under the Indenture (subject to compliance with applicable zoning ordinances, building codes and similar laws affecting real estate ownership). 8. (a) The Indenture Trustee need not qualify to do business as a foreign corporation in the State solely because of its service as Indenture Trustee under the Indenture and will not incur tax liability in the State solely as the result of the transactions contemplated in the Indenture. (b) You need not qualify to do business in the State solely because of your status as Purchasers under the Note Purchase Agreement and will not incur tax liability in the State solely as the result of the transactions contemplated in the Indenture (i.e., other than in the event of a foreclosure under the Indenture). 9. The choice of law provisions in the Note Purchase Agreement and the Indenture will be given effect in the State. Respectfully submitted, -3- EX-10.80 21 FRAN AGR 94037 EXHIBIT 10.80 BIG O TIRES, INC. FRANCHISE AGREEMENT Copyright 1994 Big O Tires, Inc. BIG O TIRES, INC. FRANCHISE AGREEMENT TABLE OF CONTENTS
SUMMARY PAGES..................................................... i GLOSSARY.......................................................... iii 1. PARTIES AND RECITALS.......................................... 1 2. GRANT OF FRANCHISE............................................ 1 2.01 Grant of Franchise.................................. 1 2.02 Trade Area.......................................... 1 3. FIRST OPTION RIGHTS........................................... 1 3.01 First Option Rights................................. 1 3.02 Notification by Big O............................... 2 3.03 Multiple First Option Rights........................ 2 3.04 Notification of Qualification....................... 2 3.05 Exercise of Option by Franchisee.................... 2 3.06 Transfer of First Option Rights..................... 2 3.07 Limitation on First Option Rights................... 2 3.08 Expiration of First Option Rights................... 2 4. TERM.......................................................... 2 4.01 Term................................................ 2 5. RENEWAL: EXTENSION OF FRANCHISE RIGHTS........................ 3 5.01 Grant of Successor Franchise Rights................. 3 5.02 Conditions to Grant of Successor Franchise.......... 3 5.03 Notification of Non-Renewal......................... 3 6. FRANCHISEE'S DEVELOPMENT OBLIGATIONS.......................... 3 6.01 Financing Approval.................................. 3 6.02 Site Selection...................................... 3 6.03 Equipment and Signage............................... 4 6.04 Conditions to Opening............................... 4 6.05 Commencement of Business............................ 4 7. PRE-OPENING AND ONGOING ASSISTANCE............................ 4 7.01 Pre-Opening Assistance.............................. 4 7.02 On-Going Assistance................................. 5 8. FEES.......................................................... 6 8.01 Initial Franchise Fee............................... 6 8.02 Royalty Fee......................................... 6 8.03 Late Fees........................................... 6 8.04 Taxes............................................... 6 8.05 Allocation of Payments.............................. 6 9. LICENSED MARKS................................................ 6 9.01 Licensed Marks...................................... 6 9.02 Limitation on Use................................... 7 9.03 Infringement........................................ 7
9.04 Franchisee's Business Name...................... 7 9.05 Change of Licensed Marks........................ 7 10. STANDARDS OF OPERATION.................................... 7 10.01 Standards of Operations........................ 7 11. STORE MANAGEMENT.......................................... 8 11.01 Store Management............................... 8 11.02 Completion of Training by Operator or Manager.. 8 11.03 Operation of Store by Big O.................... 9 12. QUALITY CONTROL........................................... 9 12.01 Inspections.................................... 9 13. MANUAL: NEW PROCESSES.................................... 9 13.01 Manual......................................... 9 13.02 Confidentiality of Information................. 9 13.03 Revisions to Manual............................ 10 13.04 Improvements to System......................... 10 14. PRODUCTS AND SERVICES..................................... 10 14.01 Products and Services.......................... 10 14.02 Approval of Products and Services.............. 10 14.03 Inventory...................................... 11 14.04 Warranties and Guaranties...................... 11 14.05 Open Account Financing......................... 11 15. ADVERTISING, MARKETING AND PROMOTIONAL PLANS.............. 11 15.01 Initial Advertising............................ 11 15.02 National Advertising Fund...................... 12 15.03 Local Fund..................................... 13 15.04 Approval of Advertising........................ 13 16. STATEMENTS AND RECORDS.................................... 13 16.01 Invoices....................................... 13 16.02 Audit.......................................... 13 16.03 Monthly Reports................................ 13 16.04 Financial Statements........................... 13 16.05 Management System.............................. 14 16.06 Regional Accounting Center..................... 14 17. COVENANTS................................................. 14 17.01 Noncompetition During Term..................... 14 17.02 Confidentiality................................ 14 17.03 No Interference with Business.................. 14 17.04 Post Termination Covenant Not to Compete....... 14 17.05 Survivability of Covenants..................... 15 17.06 Modification of Covenants...................... 15 18. TRANSFER AND ASSIGNMENT................................... 15 18.01 Assignment by Big O............................ 15 18.02 Right of First Refusal......................... 15 18.03 Transfer Legend................................ 15 18.04 Pre-Conditions to Franchisee's Assignment...... 16 18.05 Death of Franchisee............................ 18
18.06 No Waiver...................................... 18 18.07 Excepted Transfers............................. 18 19. DEFAULT AND TERMINATION................................... 18 19.01 Termination by Big O........................... 18 19.02 Governing State Law............................ 20 19.03 Termination by Franchisee...................... 20 19.04 Force Majeure.................................. 20 20. POST TERMINATION OBLIGATIONS.............................. 20 20.01 Post-Termination Obligations................... 20 20.02 Right to Repurchase............................ 22 20.03 Right of First Refusal......................... 22 20.04 De-Identification of Assets Upon Sale.......... 22 21. INSURANCE................................................. 22 21.01 Insurance Coverage............................. 22 21.02 Proof of Insurance............................. 23 21.03 Survival of Indemnification.................... 24 22. TAXES, PERMITS AND INDEBTEDNESS........................... 24 22.01 Payment of Taxes............................... 24 22.02 Compliance with Laws........................... 24 22.03 Payment of Debts............................... 24 23. INDEMNIFICATION AND INDEPENDENT CONTRACTOR STATUS......... 24 23.01 Indemnification................................ 24 23.02 Independent Contractor......................... 24 24. WRITTEN APPROVALS, WAIVERS AND AMENDMENT.................. 25 24.01 Written Approval............................... 25 24.02 Waiver......................................... 25 24.03 Modification................................... 25 25. DEALER PLANNING BOARD..................................... 25 25.01 Dealer Planning Board.......................... 25 25.02 Special Interest Issues........................ 25 25.03 Disapproval of Management Proposal............. 25 25.04 Compliance with Modification................... 26 26. RIGHT OF OFFSET........................................... 26 26.01 Right of Offset................................ 26 27. ENFORCEMENT............................................... 26 27.01 Declaratory and Injunctive Relief.............. 26 27.02 Costs of Enforcement........................... 26 28. NOTICES................................................... 26 28.01 Notices........................................ 26 29. GOVERNING LAW.............................................. 26 29.01 Governing Law................................... 26 29.02 Jurisdiction.................................... 27
30. SEVERABILITY AND CONSTRUCTION.............................. 27 30.01 Severability.................................... 27 30.02 Counterparts.................................... 27 30.03 Construction.................................... 27 31. ACKNOWLEDGEMENTS........................................... 27
Schedule 1 - Premises and Trade Area Schedule 2 - Corporate Verification Schedule 3 - Guaranty Schedule 4 - Lease Rider and Modification Schedule 5 - Farm Class Rider Schedule 6 - Renewal Rider Schedule 7 - Trademarks Schedule 8 - Convertor Rider BIG O TIRES, INC. FRANCHISE AGREEMENT SUMMARY PAGES ------------- These pages summarize the attached Franchise Agreement, the details of which shall control in the event of any conflict. 1. FRANCHISEE: OK TIRES, INC., a Utah corporation ---------- ------------------------------------------- 2. INITIAL FRANCHISE FEE: --------------------- Amount Due: -with Application: $3,500.00 ------------------------ -upon signing Agreement: ------------------ Total: $3,500.00 ------------------------------------ 3. ROYALTY FEE Two percent (2%) of Gross Sales ----------- 4. LOCAL ADVERTISING Minimum of four percent (4%) of Gross Sales ----------------- CONTRIBUTION: ------------- 5. NATIONAL ADVERTISING See sections 15 and 25 -------------------- CONTRIBUTION: ------------- 6. INITIAL ADVERTISING REQUIREMENT: ------------------------------- -------------------- 7. STORE LOCATION: ----------------------------------------------------- 2830 West 3500 South ----------------------------------------------------- Street and Number West Valley City, Utah 84119 ----------------------------------------------------- City, State and Zip Code (801) 967-7166 ----------------------------------------------------- Phone Number 8. Franchisee's Operator: ------------------------------------ 9. Franchisee's Manager: Terry Larsen/Michael Hartson ------------------------------------ 10. Franchisee's Agent For Service of Process: Name: Terry Larsen ----------------------------------------------------- Address: 3378 South 5530 West -------------------------------------------------- Salt Lake City, Utah 84120 ---------------------------------------------------------- ---------------------------------------------------------- 11. Big O's Agent for Service of Process: Name: CT Corporation ----------------------------------------------------- Address: 1675 Broadway, Suite 1200 -------------------------------------------------- Denver, Colorado 80290 ---------------------------------------------------------- -i- 12. Effective Date: -------------------------------------------- 13. Commencement Date: October 7, 1994 ----------------------------------------- 14. Expiration Date: October 7, 2004 ------------------------------------------- 15. Franchisee's Advisor: -------------------------------------- 16. Send Notices to Big O to: Name: Philip J. Teigen (Legal Department) ------------------------------------------------------ Address: Big O Tires, Inc. --------------------------------------------------- 11755 E. Peakview Avenue --------------------------------------------------- Englewood, Colorado 80111 --------------------------------------------------- 17. Send Notices to Franchisee to: Name: Big O Tires ------------------------------------------------------ Address: 2830 West 3500 South --------------------------------------------------- West Valley City, Utah 84119 --------------------------------------------------- 18. Business not subject to Section 17 (a) Name: ------------------------------------------------------ Address: --------------------------------------------------- ----------------------------------------------------------- ----------------------------------------------------------- 19. Farm Class Franchise: Yes ------------------------------------------------------- No X ------------------------------------------------------- 20. First Option Holder: Name: N/A -------------------------------------------------- Address: -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- -ii- GLOSSARY (in alphabetical order) Advertising - The advertising, promotional programs, public relations programs and marketing programs approved or administered by Big O utilizing the resources of the National Advertising Fund or local franchisee cooperatives or franchisee associations. Agreement - This contract, the Summary Pages and all Riders and Schedules hereto, as interpreted through the Manual. Big O - Big O Tires, Inc. Big O Store or Store - A retail tire store operated pursuant to the Big O System. Big O System or System - The plan and system developed by Big O relating to the complete operation of Stores which are authorized to sell Products and Services and offer other authorized tire and automotive services at retail, which include some or all of the following: site selection as required, site approval, Store layout and design, product selection and display, purchasing and inventory control methods, accounting methods, merchandising, advertising, sales and promotional ideas, franchisee training, personnel training, and other matters relating to the efficient operation and supervision of Stores and the maintenance of uniform standards of retail merchandising. Blue II - See the definition of "Manual". Commencement Date - The date upon which the Store opens for business or, in the event of transfer, or conversion, the date designated by Big O Tires, Inc. Convertor - A person who converts a retail tire store it owns to a Big O Store pursuant to this Agreement. Dealer Planning Board - The group of franchisee representatives elected from each Local Group which meets periodically with Big O's management to develop Big O's strategic plans and to discuss issues of concern to franchisees. The functions of the Dealer Planning Board are described in Section 25 of this Agreement. Development Agreement - An agreement between Big O and a person to which the person ("Developer") agrees that within a defined territory to open and commence operating an agreed number of Big O Stores pursuant to a development schedule. Developers must execute Franchise Agreements prior to commencing business at any Store developed pursuant to a Development Agreement. Due Date - The fifteenth day of each month: the date by which all royalty fees and advertising contributions must be postmarked and mailed to Big O. Effective Date - The date upon which the Franchise Agreement has been executed in full by both the Franchisee and Big O. Expiration Date - The date on which the initial term of the Agreement expires. Farm Class Store - A Store with twenty-five percent (25%) or more of its average Gross Sales during any twelve (12) month period arising directly from the sale of Farm Class Tires. Farm Class Tires - Farm tires, off road tires, large double bead truck tires and similar select tires, as may be more specifically defined from time to time by Big O. -iii- First Option - Franchisee's right to acquire a franchise for a new Store planned for development within a five (5) mile radius of Franchisee's Premises. The First Option and method of exercising it are described in Section 3 of this Agreement. Franchise - The rights granted by the Franchise Agreement. Franchised Business - The business operated pursuant to a license granted by Big O which utilizes the Licensed Marks and the Big O System. Franchisee - The individual(s), corporation or other entity to which the Franchise is granted. Depending on the context of this Agreement, the term Franchisee may include the shareholders or guarantors of a corporate Franchisee. Gross Sales - The aggregate gross amount of all revenues from whatever source derived whether in form of cash, credit, agreements to pay or other consideration including the actual retail value of any goods or services traded, bartered, or otherwise received by Franchisee in exchange for any form of non- monetary consideration, (whether or not payment is received at the time of sale or any such amount is proved uncollectible) from or derived by Franchisee or any other person from business conducted or which originated in, on, from or through the Premises, whether such business is conducted in compliance with or in violation of the terms of the Franchise Agreement. Gross Sales includes sums paid for claims made on business interruption insurance policies, Federal Excise Taxes collected, as well as payments received from employees of Franchisee for products purchased at a discounted price. However, Gross Sales does not include: (i) sales or use taxes collected by Franchisee; (ii) the amount of any refunds or allowances made on Products and Services returned by customers; (iii) returns to shippers, vendors and manufacturers; (iv) proceeds derived from the sale of equipment or supplies used by Franchisee in the operation of the Store and not acquired for resale; (v) sales of Products and Services to other Big O Stores; (vi) tire disposal fees so long as the fees charged do not exceed the highest fee recommended by any applicable governmental agency; and (vii) sums received in settlement of claims for loss or damage to fixtures, equipment or leasehold improvements, other than sums received from business interruption insurance. Information - The contents of the Manual or any other manual, computer software, materials, goods, training module and any other proprietary information and information created or used by Big O designated for confidential use within the Big O System, and the information contained therein. Initial Advertising - Advertising conducted within sixty (60) days of the Commencement Date to promote the opening of the Store. Licensed Marks - Trademarks and trade names, service marks and associated logos and symbols owned or sublicensed by Big O, including those enumerated on Schedule 7 and such other marks, logos and names as Big O may designate. Local Fund - The fund, which may be a trust fund, corporation or other entity, derived from contributions by Big O franchisees who are members of a Local Group which shall be maintained by the Local Group for Advertising pursuant to such guidelines as Big O may approve or prescribe. Local Group - A cooperative or association of Big O franchisees formed and operating in their marketing area pursuant to a structure approved or prescribed by Big O for the purpose of promoting Big O Stores and their Products and Services, and providing Management Systems and related services to its members to the extent approved by Big O. Big O will assign a Franchisee to a Local Group and Franchisee must become a member of that Local Group and be bound by any decisions it makes to the extent they are approved by Big O. -iv- Management Systems - Computer hardware, software, cash registers, bookkeeping and accounting services or systems and other systems designed to provide information for the management of Big O Stores, including but not limited Boss/2/. Manager - An individual other than the Operator who is responsible for the day- to-day operation of a Store. Manager Incentive Contract - An agreement pursuant to which certain Managers may earn purchase credits based upon their performance so that they can acquire Big O franchises from their employer, whether the employer is Big O or a Big O franchisee. Manual - The various written, audio and video instructions and manuals, including amendments thereto relating to the operation of the Franchised Business which are provided to Franchisee by Big O and identified as such, including but not limited to A Blueprint For Success, also known as "Blue II", Big O's Confidential Operating Manual, any training module or any other proprietary information. National Advertising Fund - The fund derived from contributions by Big O franchisees which shall be exclusively maintained and administered by Big O for national Advertising in cooperation with the Dealer Planning Board. National Fund - Big O Tires, Inc. National Advertising Fund. Operator - The individual approved by Big O who shall be responsible for the operation of the Franchised Business. The Operator may be the Franchisee if the Franchisee is an individual. Option - Big O's right to purchase the interest being offered by the Franchisee or any Shareholder by matching the bona fide monetary purchase price and payment schedule terms of the proposed Transfer, less any brokerage commission (without having to match any other non-monetary terms). Pioneer - A person who owned at least twenty-five percent (25%) equity interest in a Big O franchisee on March 1, 1987, provided such ownership interest appeared on Big O's records as of July 1, 1987. A Pioneer is entitled to acquire Big O franchises for one-third of the applicable initial franchise fee, provided the Pioneer satisfies Big O's other requirements. Premises - The site from which a Franchised Business will be operated at the Store Location described on the Summary Pages, or where applicable, on Schedule 1 to the Franchise Agreement. Products and Services - All tires (including but not limited to Big O's private brand lines of tires), products and services produced, organized or distributed under a license granted by Big O, which are designated by Big O for sale or lease in Stores. Regional Accounting Center - A cooperative or association which provides accounting, payroll, tax and related services for the purpose of providing such services at a lower cost and providing the financial reporting Big O requires. Shareholder - Any person possessing a legal or beneficial interest or holding a share of stock of any kind or nature in the Franchisee, including partners in a Franchisee which is a partnership. Survivor - A surviving spouse or heir of estate of any deceased person owning stock or any other interest in the Franchisee. Termination Date - The date upon which the Franchise Agreement is cancelled or ended by Big O or the Franchisee. -v- Trade Area - The area described on Schedule 1 to the Agreement within which, subject to certain conditions, Big O agrees to limit the number of Stores to one (1) for every fifty thousand (50,000) persons residing therein. Big O may, from time to time, redefine Franchisee's Trade Area. Trade Dress - Any shop or architectural designs, fixtures, improvements, signs, color schemes or other elements of the appearance of the Store which in any manner suggest affiliation of the Store or Premises with Big O, or the System. Transfer - To give away, sell, assign, pledge, lease, sublease, devise, or otherwise transfer, either directly or by operation of law or in any other manner, the Agreement, any of Franchisee's rights or obligations hereunder, or any interest or shares of stock or partnership interest of any kind or nature in Franchisee or the Premises. The merger or consolidation or issuance of additional securities representing an ownership interest in Franchisee shall also be deemed to be a "Transfer" for purposes of this Agreement. -vi- BIG O TIRES, INC. FRANCHISE AGREEMENT This Franchise Agreement ("Agreement") is made by and between Big O Tires, Inc. ("Big O"), a Nevada corporation, with its principal place of business at 11755 East Peakview Avenue, Englewood, Colorado 80111, and OK TIRES, INC. ("Franchisee"), a(n) Utah corporation with a place of business at 2830 West 3500 South, West Valley City, Utah 84119. 1. PARTIES AND RECITALS 1.01 Big O was established to provide franchisees with access to Products and Services and a System for marketing and servicing such Products and Services. Since its inception, Big O has added to the Product and Services and System to enhance the competitive posture of its franchisees. Big O has developed and owns certain Licensed Marks which are licensed to franchisees for use in the Big O Stores. In connection therewith, Big O has developed the Big O System relating to the operation of Stores which are authorized to offer and sell Big O tires as part of the Products and Services offered to retail customers. 1.02 Franchisee desires, upon the terms and conditions set forth herein, to obtain a license to operate a Franchised Business and to offer and sell Big O Products and Services. Franchisee acknowledges that it is essential to the preservation of the integrity of the Licensed Marks, and the goodwill of Big O and the Big O System, that each franchisee in the System maintain and adhere to certain standards, procedures and policies described hereinafter and in the Manual. 1.03 Big O is willing, upon the terms and conditions set forth herein, to license Franchisee to operate a Franchised Business which will utilize the Licensed Marks and the Big O System. 2. GRANT OF FRANCHISE 2.01 Grant of Franchise. Subject to all of the terms and conditions herein, including but not limited to, the condition that Franchisee or its Shareholders or some of them, personally guarantee the obligations of Franchisee to Big O under this Agreement as set forth in Schedule 3 to this Agreement, Big O grants to Franchisee the non-exclusive license to use the Licensed Marks and the exclusive right to operate a Franchised Business solely at the Premises set forth in Schedule 1 to this Agreement. If, at the time of execution of this Agreement, the Premises cannot be designated as a specific address because a location has not been selected by Franchisee and approved by Big O, then Franchisee shall promptly take steps to choose and acquire a location for its Big O Store within the following city, county or other geographical area: West Valley City, Utah ("Designated Area"). In such circumstances, Franchisee shall select and submit to Big O for approval a specific location for the Premises, which shall hereinafter be set forth in Schedule 1. 2.02 Trade Area. During the term of this Agreement, Big O agrees not to operate itself or grant to any other person the right to operate any more than one (1) Store for every fifty thousand (50,000) persons residing in the Trade Area described on Schedule 1. Big O may, from time to time, redefine the Trade Area. Absent Franchisee's prior approval, Big O shall not permit the establishment or operation of another Store within a two (2) mile radius of Franchisee's Store. Big O shall offer Products and Services bearing the Licensed Marks at retail only through Big O Stores. 3. FIRST OPTION RIGHTS 3.01 First Option Rights. Subject to the conditions described below, if Big O or any prospective Big O franchisee should propose to open a Store within a five (5) mile radius of Franchisee's Store, Franchisee shall be notified of its First Option to acquire a Franchise for an additional Store within the five (5) mile radius of its Store. Franchisee may only exercise the First Option if: (a) at the time Big O notifies Franchisee of the proposal for the new Store, Franchisee is in full compliance with all the terms of this Agreement and any other agreements it has with Big O; (b) Franchisee meets Big O's then current criteria for new franchisees; and (c) There are not two (2) or more Big O franchises with Stores within a five (5) mile radius of the site of a proposed new Store. 3.02 Notification by Big O. When notifying Franchisee of a proposal to establish a new Store in accordance with Franchisee's First Option, Big O may notify Franchisee of the proposal to establish the new Store within the general vicinity of Franchisee's Store without identifying a specific site or sites. 3.03 Multiple First Option Rights. If two (2) or more Big O franchisees have Stores within a five (5) mile radius of the site of a proposed new Store, the Franchisee and all such franchisees will be invited simultaneously by written notice from Big O to exercise their First Option rights; but if two (2) or more such franchisees apply for the same franchise, it shall be awarded to the qualified franchisee which has a Store that is closest to the site of the proposed new Store or, if two qualified franchisees have Stores that are equidistant from such site, it shall be awarded to the qualified franchisee which owns the franchised Big O Store which was first licensed as a Big O Store by the current or a previous owner. 3.04 Notification of Qualification. If Franchisee qualifies for the First Option pursuant to this Section 3, Big O will provide Franchisee with written notice that it has thirty (30) days within which to submit an application for the franchise in the manner prescribed by Big O in the notice. Franchisee must submit the application within the prescribed time along with the standard franchise deposit then required by Big O. Upon approval of the application by Big O, Franchisee must execute Big O's then current standard Franchise Agreement and pay the remainder of any initial fee due. 3.05 Exercise of Option by Franchisee. If Franchisee is a corporation or partnership, the First Option may be exercised only by the corporation or partnership itself, or by the individual designated as First Option holder on the Summary Pages. 3.06 Transfer of First Option Rights. The First Option is not transferable without Big O's prior written approval, which may be withheld for any reason, in Big O's sole discretion. 3.07 Limitation on First Option Rights. The First Option rights described above are void and unenforceable with respect to a site proposed for development in an area which is at the time of the proposal subject to a Development Agreement between Big O and Developer. 3.08 Expiration of First Option Rights. If a Franchisee has failed to qualify for or otherwise submit an application for a Franchise pursuant to this Section 3 for a proposed franchise to be granted within the area in which Franchisee holds First Option rights, Franchisee's First Option rights for that proposed franchise shall lapse regardless of whether the site actually selected for development by Big O is different from the site which was initially proposed for development. 4. TERM 4.01 Term. This Agreement shall take effect upon the earlier of the Effective Date or of the Commencement Date and, unless previously terminated pursuant to Section 19 hereof, its term shall extend until the earlier of the tenth anniversary of the Commencement Date or such other Expiration Date as is stated on the Summary Pages. -2- 5. RENEWAL: EXTENSION OF FRANCHISE RIGHTS 5.01 Grant of Successor Franchise Rights. If Franchisee is not in default under this Agreement and has complied with all of its provisions during the initial term, and has cooperated with Big O, its Local Group and other Big O franchisees in programs and suggestions developed by Big O, upon its expiration Big O will offer a successor franchise agreement with Franchisee, provided the parties mutually agree to the terms of a successor franchise at least one hundred eighty (180) days before the Expiration Date. 5.02 Conditions to Grant of Successor Franchise. Big O will only offer to execute a new franchise agreement in accordance with its then current terms and conditions for granting successor franchises, which may include any or all of the following: (a) Execution of a new and modified franchise agreement which may include, among other matters, a different fee structure, increased fees, a modified Trade Area and different purchase requirements; (b) A requirement that Franchisee refurbish the Premises or relocate the Premises to conform to Big O's then current standards for similar Stores; (c) Payment of Big O's renewal administration fee of One Thousand Five Hundred Dollars ($1,500); and (d) Execution of a general release in favor of Big O and its representatives. 5.03 Notification of Non-Renewal. If Big O is willing to execute a new franchise agreement with Franchisee, at least one (1) year before the Expiration Date, Big O shall notify Franchisee of the Expiration Date and the terms and conditions upon which Big O is willing to execute a new franchise agreement with Franchisee. Franchisee must execute a successor franchise agreement within sixty (60) days of its receipt. The Franchise Agreement will expire on the Expiration Date and the franchise relationship will terminate unless Franchisee and Big O have executed a successor franchise agreement at least one hundred eighty (180) days prior to the Expiration Date, and Franchisee has satisfied all other terms and conditions agreed upon as a prerequisite to renewal. If Big O intends not to offer Franchisee a successor franchise agreement, Big O shall give Franchisee at least one hundred eighty (180) days notice of nonrenewal prior to the Expiration Date. If Big O has not given Franchisee at least one hundred eighty (180) days notice of nonrenewal prior to the Expiration Date, the term of this Agreement will automatically be extended by the amount of time necessary to give Franchisee one hundred eighty (180) days notice of nonrenewal. 6. FRANCHISEE'S DEVELOPMENT OBLIGATIONS 6.01 Financing Approval. Unless otherwise agreed to by Big O, Franchisee shall obtain a letter of commitment for the provision of financing through a lender approved by Big O and with minimum credit terms, also approved by Big O, no later than one hundred twenty (120) days from the Effective Date of this Agreement. 6.02 Site Selection. Franchisee shall obtain the written approval of Big O of the site for the Store within one hundred twenty (120) days from the Effective Date of this Agreement. Franchisee shall propose sites for approval by Big O on forms and in the manner designated from time to time by Big O. A proposed site shall only be submitted to Big O for approval after Franchisee has evaluated the site and determined that it meets Big O's then current criteria for sites which Big O has communicated to Franchisee. Franchisee shall be responsible for obtaining Big O's then current site criteria prior to submitting a site approval application. Big O shall review the site approval application -3- and within thirty (30) days of Big O's receipt thereof, Big O shall approve or reject the proposed site. Unless otherwise agreed to in writing by Big O, final site approval will be conditioned upon Big O's receipt of evidence of Franchisee's ownership, lease or control of the property in such form as Big O, in its sole discretion shall deem to be acceptable, including, without limitation, a deed to the property, an executed contract to purchase the property, a lease with a duration of not less than ten (10) years, or an option to purchase the property. Franchisee acknowledges and agrees that Big O's approval of a site or provision of criteria regarding the site do not constitute a representation or warranty of any kind, express or implied, as to the suitability of the site for a Big O Store or for any other purpose. Big O's approval of the site indicates only that Big O believes that a site falls within the acceptable criteria established by Big O as of that time. In the case of a Convertor, execution of this Agreement shall be deemed approval of the Store Location by Big O, unless additional obligations to convert or upgrade the premises are described in Schedule 8 to this Agreement. 6.03 Equipment and Signage. Franchisee agrees to purchase, lease or otherwise use in the establishment and operation of the Big O Store only those fixtures, equipment, signs and hardware and/or software that Big O has approved as meeting its specifications and standards for quality, design, appearance, function and performance. Franchisee shall purchase or lease approved brands, types or models of fixtures, equipment, and signs only from suppliers designated or approved by Big O. Franchisee agrees to place or display at the Premises only such signs, logos and display materials that Big O approves from time to time. 6.04 Conditions to Opening. Franchisee agrees, at its sole expense, to do or cause to be done the following prior to opening the Big O Store for business: (i) secure all required financing; (ii) obtain all required permits and licenses; (iii) construct all required improvements and decorate the Store in compliance with approved plans and specifications; (iv) purchase and install all required fixtures,equipment and signs required for the Big O Store; (v) purchase an opening inventory of tires and supplies; (vi) provide Big O with copies of all required insurance policies, or such other evidence of coverage and payment as Big O requests; and (vii) provide Big O with any other documents as may be required by Big O, including but not limited to financing statements. 6.05 Commencement of Business. Franchisee agrees to open the Big O Store for business within fourteen (14) days after Big O notifies Franchisee that the conditions set forth in this Section 6 have been satisfied. Unless otherwise agreed in writing by Big O and Franchisee, Franchisee has sixteen (16) months from the Effective Date of this Agreement within which to have its Big O Store opened and operating ("Development Period"). Big O will extend the Development Period for a reasonable period of time in the event that factors beyond Franchisee's reasonable control prevent Franchisee from meeting this Development Period, so long as Franchisee has made reasonable and continuing effort to comply with such development obligations and Franchisee requests, in writing, an extension of time in which to have its Big O Store open and operating before the Development Period lapses. 7. PRE-OPENING AND ONGOING ASSISTANCE 7.01 Pre-Opening Assistance. Prior to Franchisee's Commencement Date, Big O shall provide Franchisee with such of the following and on the same basis as it will from time to time provide to similarly situated franchisees of Big O: (a) Assistance to Franchisee related to approval of a site for the Store, although Franchisee acknowledges that Big O shall have no obligation to select or acquire a site on behalf of Franchisee. Big O's assistance will consist of the provision of criteria for a satisfactory site, an on-site inspection and determination of whether a proposed site fulfills the requisite criteria, prior to formal approval of a site selected by Franchisee. At Big O's option, Big O may, -4- without fee or expense to Franchisee and review the proposed Store lease. The final decision about whether to acquire a given approved site or whether to execute any particular lease shall be the sole decision of Franchisee. Big O disclaims all liability for the consequences of approving a given site. Big O's participation in site selection in no way is meant to constitute a warranty or guaranty that the Franchised Business will be profitable or otherwise successful. Big O's written approval of the Premises and Store must be obtained by Franchisee before the Store may be opened or relocated. Big O may condition its approval of a Store lease upon Franchisee's execution of a conditional lease assignment in a form which is the same as or similar to the one found on Schedule 4. (b) A prototype floor plan, elevation and equipment layout for the Store, if requested by Franchisee. The plans must be modified by Franchisee's architect or contractor to adapt them to conditions at the Premises and to satisfy all local code requirements. Revisions or modifications to the plans must be approved by Big O. (c) Five consecutive (5) weeks of training for one person in the operation of the Franchised Business at Big O's training facility located in Mesa, Arizona, or another location designated by Big O. Unless Big O waives the training requirement, the Manager of the Franchisee's Store, provided he or she has been approved by Big O, and Franchisee's Operator must attend and successfully complete such training. Franchisee shall pay for its own transportation, lodging, and living expenses which are incurred while attending the initial training program, except that Big O will pay lodging and transportation for the first person to attend the training program. In the event that, in Big O's sole discretion, Franchisee's Operator fails to successfully complete the initial training program, Big O may, in its sole discretion, require Franchisee's Operator to attend and successfully complete another training program or terminate this Agreement and, upon receipt from Franchisee of a general release in a form approved by Big O, refund the initial franchise fee paid by Franchisee, less any amounts necessary to reimburse Big O for the costs it incurred in approving Franchisee and in training Franchisee's Operator and Manager. (d) One (1) copy of Big O's Confidential Operating Manual and Operations Manual, known as "Blue II"or other such proprietary information. (e) Assistance in selecting Franchisee's initial inventory. 7.02 On-Going Assistance. Big O agrees to make available to Franchisee the following ongoing assistance for which Big O may charge the Franchisee a fee: (a) To the extent available to Big O, a source of Big O private brand tires; (b) Ongoing research and development into new tires and other lines of Products and Services and ways to enhance the competitive posture of Big O Stores; (c) Additional training for the Operator or other personnel of Franchisee, for which Big O may charge the Franchisee a fee; (d) Suggested prices for Big O brands sold at the Franchisee's Store, provided that Franchisee will not be required to sell at any particular price if such a requirement would be unlawful; -5- (e) A warranty or replacement program for Big O private brand tires and related automotive Products and Services; (f) Regional training provided by Big O personnel and field assistance, inspections and advice pertaining to the Franchisee's Store provided by Big O area managers; (g) Point of sale advertising materials and wearables utilizing Big O marks will be purchased through Big O's subsidiary, O Advertising, Inc., or such other licensee as designated by Big O; and from time to time, local advertising plans and materials, special promotions and similar advertising, for which Big O may charge the Franchisee a fee; (h) At the request of Franchisee's Local Group, Big O will supply Franchisee with newspaper mats and radio and television commercial tapes, for which Big O may charge Franchisee or the Local Group a fee. 8. FEES 8.01 Initial Franchise Fee. In consideration of the execution of this Agreement, Franchisee agrees to pay Big O an initial franchise fee in the amount and at the times specified on the Summary Pages. Except as described in Section 7.01(c) above, the initial franchise fee is not refundable. 8.02 Royalty Fee. After the Commencement Date, Franchisee shall pay to Big O a monthly royalty fee equal to two percent (2%) of the prior month's Gross Sales. The royalty fee must be postmarked and mailed to Big O by no later than the Due Date. 8.03 Late Fees. If any fee or any other amount due under this Agreement, including payments for Products and Services, is not received within ten (10) days after such payment is due, Franchisee shall pay Big O interest equal to the lesser of the daily equivalent of eighteen percent (18%) per annum of such overdue amount per year, or the highest rate then permitted by applicable law, for each day such amount is past due. 8.04 Taxes. If any federal, state, or local tax other than an income tax is imposed upon royalty fees paid by Franchisee to Big O which Big O cannot offset against taxes it is required to pay under the laws of the United States or the state of its domicile, Franchisee agrees to compensate Big O in the manner prescribed by Big O so that the net amount or net rate received by Big O is no less than that which has been established by this Agreement and which was due Big O on the Effective Date of this Agreement. 8.05 Allocation of Payments. Unless other written instructions accompany a specific payment, all payments made by Franchisee pursuant to this Agreement shall be applied in such order as Big O may designate from time to time. Big O shall comply with any written instructions for allocation specified by Franchisee to the extent, in Big O's opinion, it is reasonable to do so. 9. LICENSED MARKS 9.01 Licensed Marks. Franchisee expressly acknowledges that Big O is the sole and exclusive licensor of the Licensed Marks. Franchisee agrees not to represent in any manner that Franchisee has acquired any ownership rights in the Licensed Marks. Franchisee agrees not to use any of the Licensed Marks or any marks, names, or indicia which are or may be confusingly similar in its own corporate or business name except as authorized in this Agreement. Franchisee further acknowledges and agrees that any and all goodwill associated with the Big O System and identified by the Licensed Marks shall inure directly and exclusively to the benefit of Big O and that, upon the -6- expiration or termination of this Agreement for any reason, no monetary amount shall be assigned as attributable to any goodwill associated with Franchisee's use of Licensed Marks. 9.02 Limitations on Use. Franchisee understands and agrees that any use of the Licensed Marks other than as expressly authorized by this Agreement, without Big O's prior written consent, is an infringement of Big O's rights therein and that the right to use the Licensed Marks granted herein does not extend beyond the termination or expiration of this Agreement. Franchisee expressly covenants that, during the term of this Agreement and thereafter, Franchisee shall not, directly or indirectly, commit any act of infringement or contest or aid others in contesting the validity of Big O's right to use the Licensed Marks or take any other action in derogation thereof. 9.03 Infringement. Franchisee acknowledges Big O's right to regulate the use of the Licensed Marks and Trade Dress of the Big O System. Franchisee shall promptly notify Big O if it becomes aware of any use or any attempt by any person or legal entity to use the Licensed Marks or Trade Dress of the Big O System, any colorable variation thereof, or any other mark, name, or indicia in which Big O has or claims a proprietary interest. Franchisee shall assist Big O, upon request and at Big O's expense, in taking such action, if any, as Big O may deem appropriate to halt such activities, but shall take no action nor incur any expenses on Big O's behalf without Big O's prior written approval. 9.04 Franchisee's Business Name. Franchisee further agrees and covenants to operate and advertise only under the name or names from time to time designated by Big O for use by similar Big O System franchisees; to refrain from using the Licensed Marks to perform any activity or to incur any obligation or indebtedness in such a manner as may, in a way, subject to Big O to liability therefor; to observe all laws with respect to the registration of trade names and assumed or fictitious names; to include in any application for the above a statement that Franchisee's use of the Licensed Marks is limited by the terms of this Agreement, and to provide Big O with a copy of any such application and other registration document(s); and to observe such requirements with respect to trademark and service mark registrations, copyright notices, and other notices as Big O may, from time to time, require. 9.05 Change of Licensed Marks. Subject to the requirements of Section 25 of this Agreement, Big O reserves the right, in its sole discretion, to designate one or more new, modified, or replacement Licensed Marks or trade names for use by franchisees and to require the use by Franchisee of any such new, modified, or replacement Licensed Marks or trade names in addition to or in lieu of any previously designated Licensed Marks. Any expenses or costs associated with the use by Franchisee of any such new, modified, or replacement Licensed Marks shall be the sole responsibility of Franchisee. 10. STANDARDS OF OPERATION 10.01 Standards of Operations. Big O shall establish and Franchisee shall maintain high standards of quality, appearance and operation for the Franchised Business. For the purpose of enhancing the public image and reputation of the businesses operating under the System and for the purpose of increasing the demand for Products and Services provided by Franchisee and Big O, the parties agree as follows: (a) Franchisee shall not open the Store for business until Big O has provided Franchisee with written authorization to do so; (b) Franchisee shall comply in good faith with all published Big O System rules, regulations, policies, and standards, including, without limitation, those contained in the Manual. Franchisee shall -7- operate and maintain the Franchised Business solely in the manner and pursuant to the standards prescribed herein, in the Manual and in other materials provided by Big O to Franchisee, and shall make such modifications thereto as Big O may require; (c) Franchisee shall at all times operate the Store diligently and in a manner which is consistent with sound business practices so as to maximize the revenues therefrom; (d) Franchisee shall at all times maintain working capital and a net worth which is sufficient, in Big O's opinion, to enable Franchisee to fulfill properly all of Franchisee's responsibilities under this Agreement; (e) Franchisee shall at all times maintain its Store in the image of and according to the standards of Big O as prescribed in the Manual. Moreover, Franchisee agrees to cooperate with Big O at its expense, to the extent building and site limitations permit, in the implementation of new programs, including those which may require the addition of new equipment or fixtures for the Store. In its sole discretion, Big O may waive some or all of any of its franchisees' obligations to comply with such programs. (f) Prior to opening, Franchisee shall provide Big O with written certificates or documentary evidence from an insurance company or companies that Franchisee has obtained the insurance coverage prescribed by Section 21; (g) If Franchisee maintains a customer list, such lists or parts thereof shall be disclosed to no one other than Franchisee's employees or Big O without Big O's prior written consent; and (h) Franchisee shall participate in and be bound by the decisions of any Local Group established and operated pursuant to standards and within the guidelines prescribed or approved by Big O. Franchisee shall not be subject to any agreement to fix prices, or allocate customers or territories which would violate any applicable laws. Nor will Franchisee be subject to any capital investment requirements or other standards which are inconsistent with this Agreement or which have not been approved or prescribed by Big O. 11. STORE MANAGEMENT 11.01 Store Management. Franchisee's Store shall only be operated by the Operator or a Manager employed by the Franchisee who has previously been approved by Big O. All initial and subsequent Operators or Managers must be approved by Big O. Big O's approval will be conditioned upon the Operator's or Manager's successful completion of any training required by Big O. Big O may waive some or all of its initial training requirements for Operators or Managers who have already received such training as a result of their affiliation with another Store or Big O franchisee. If Franchisee or Franchisee's Operator has not already successfully completed such training, he shall be required to successfully complete the training described in Section 7.01 (c) above. 11.02 Completion of Training by Operator or Manager. Franchisee's Operator or Manager and such of its managerial personnel or Shareholders as are designated by Big O, shall complete, to Big O's reasonable satisfaction, any and all training programs Big O may reasonably require or provide at such time as Big O may reasonably prescribe. All expenses incurred by persons receiving such training, including, without limitation, costs of travel, room and board, as well as wages of the person(s) receiving such training shall be borne by the Franchisee except that the transportation and lodging costs for the first person receiving such training shall be paid by Big O. -8- 11.03 Operation of Store by Big O. Under the circumstances described below, upon Franchisee's request, Big O has the option, but not the duty, to replace or substitute for Franchisee's Operator, Manager, or both, its own employees or agents, to operate the Franchisee's Store for the benefit of Franchisee with complete discretion over all matters relating to its operation. Franchisee shall pay Big O's then current Store management fee as well as the out-of-pocket expenses Big O incurs for travel, food and lodging in the course of providing such services. Big O may operate Franchisee's Store if: (a) Franchisee's Operator or Manager has failed to satisfactorily complete any training required by this Section 11; or (b) Franchisee's Operator or Manager becomes physically or mentally incapable of operating the Franchised Business; or (c) Franchisee's Operator or Manager dies and a new Operator or Manager has not completed initial training. 12. QUALITY CONTROL 12.01 Inspections. Franchisee hereby grants to Big O and its authorized agents the right to enter the Premises during regular business hours: (a) To conduct inspections and, upon Big O's request, Franchisee agrees to render such assistance as may reasonably be requested and to take such steps as may be necessary immediately to correct any deficiencies in the operation of its Franchised Business pursuant to this Agreement which are detected during such an inspection; and (b) To remove from the Premises, certain samples of any Products and Services, supplies or goods, in amounts reasonably necessary for testing or examination by Big O or an independent laboratory, to determine whether such samples meet Big O's then current standards and specifications. Big O will grant Franchisee a credit equivalent to the cost of any approved Products and Services or supplies damaged or removed by it. 13. MANUAL; NEW PROCESSES 13.01 Manual. To protect the reputation and goodwill of the businesses operating under the System and to maintain high standards of operation under the Licensed Marks, Franchisee shall conduct the Franchised Business strictly in accordance with the Manual, which Franchisee acknowledges belongs solely to Big O and shall be on loan from Big O during the term of this Agreement. Franchisee agrees to pay Big O up to Five Thousand Dollars ($5,000) for the failure to return the Confidential Operating Manual, Big O's Blueprint for Success, otherwise known as Blue II, any training module or any other proprietary information to Big O within five (5) days of the Expiration Date or Termination Date of this Agreement, or the date upon which controlling interest in the Franchisee, the Franchised Business or its assets is transferred. However, Big O will waive the payment if Franchisee notifies Big O that it has lost or mislaid all or part of the Manual at any time prior to six (6) months before the date upon which the Franchise is transferred, terminates, or expires. 13.02 Confidentiality of Information. Franchisee shall at all times use its best efforts to keep Big O's Information confidential and shall limit access to the Information to employees and independent contractors of Franchisee on a need-to-know basis. Franchisee acknowledges that the unauthorized use or disclosure of Big O's Information will cause irreparable injury to Big O and that -9- damages are not adequate remedy. Franchisee accordingly covenants that it shall not at any time, without Big O's prior written consent, disclose, use, permit the use thereof (except as may be required by applicable law or authorized by this Agreement), copy, duplicate, record, transfer, transmit, or otherwise reproduce such Information, in any form or by any means, in whole or in part, or otherwise make the same available to any unauthorized person or source. Any and all Information, knowledge, and know-how not generally known about the System and Big O's Products and Services, standards, procedures, techniques, and such other Information or material as Big O may designate as confidential shall be deemed confidential for purposes of this Agreement, except Information which Franchisee can demonstrate lawfully came to its attention prior to disclosure by Big O, or which legally is or has become a part of the public domain by publication or communication by others. 13.03 Revisions to Manual. Franchisee understands and acknowledges that subject to the requirements of Section 25, Big O may, from time to time, revise the contents of the Manual to implement new or different requirements for the operation of the Franchised Business, and Franchisee expressly agrees to comply with all such changed requirements which are by their terms mandatory, provided, that such requirements apply in a reasonably nondiscriminatory manner to comparable Big O franchisees. The implementation of such requirements may require the expenditure of reasonable sums of money by Franchisee. Big O will not alter the basic rights and obligations of the parties arising under this Agreement through changes to the Manual. 13.04 Improvements to System. If Franchisee develops any concept, process, service, or improvement in the operation or promotion of the Store, Big O may itself use or disclose it to other Big O franchisees without any obligation to compensate Franchisee therefor. If the concept, process, service, or improvement is adopted for use by the majority of Big O Stores, such concept, process, service, or improvement shall become the property of Big O and Big O may itself use or disclose it to other Big O franchisees without any obligation to compensate Franchisee therefor. 14. PRODUCTS AND SERVICES 14.01 Products and Services. Franchisee acknowledges that its principal interest in acquiring a Big O Franchise is to sell Big O private brand tires and related merchandise and benefit from Big O's Products and Services selection, purchasing programs including programs for the purchase of major brand tires, and marketing expertise. The consuming public expects Big O Stores to offer the full line of Big O Products and Services and advertised warranty services. Accordingly, Franchisee shall at all times have in stock on the Premises a complete representative line of Big O private brand tires, shock absorbers, related merchandise, and other Products and Services in such quantities as Big O may prescribe from time to time. 14.02 Approval of Products and Services. Prior to commencing business at the Premises, Franchisee shall stock the Store with Products and Services and supplies of such variety and in such amounts as Big O may select. Franchisee may not sell any product or service which has not been selected, manufactured, or approved by Big O. Big O is not obliged to approve any product, service, or merchandise selected by the Franchisee. Big O will exercise its right of approval of suppliers selected by the Franchisee which are not at the time approved by Big O for use by the Franchisee in accordance with the following procedure: (a) The Franchisee must submit a written request to Big O for approval of the supplier; (b) The Franchisee must demonstrate to Big O the existence of a need for the product; -10- (c) The supplier must demonstrate to Big O's reasonable satisfaction, that it is able to supply a commodity to the Franchisee meeting Big O's specifications for such commodity and that it is able to do so on a timely basis; (d) The supplier must demonstrate to Big O's reasonable satisfaction that the supplier is of good standing in the business community with respect to its financial soundness and reliability of its product and service; (e) The supplier must agree to indemnify and hold Big O and the Franchisee harmless from and against any claim or liability by reason of the supplier's products, including without limitation, defects in materials and workmanship and supplier must provide to Big O certificates or other evidences of insurance coverage with coverage limits sufficient to cover the risks and an endorsement reflecting that Big O and Franchisee are named as additional insureds under the supplier's insurance policies; and (f) Big O must be reasonably satisfied that the commodity is priced competitively. Big O's current practice is to notify the Franchisee of its approval or disapproval in writing as soon as practicable. 14.03 Inventory. Franchisee shall at all times maintain an inventory of Products and Services in such amounts and of such variety as Big O may reasonably require, and shall offer all services which Big O may require. 14.04 Warranties and Guaranties. Franchisee agrees to issue and honor warranties and guarantees written on certain Products and Services sold to consumers in accordance with the terms and procedures prescribed in the Manual. Any such warranty or guaranty will be offered through all Big O Tire Stores on a nondiscriminatory basis. Only warranties or guarantees sponsored or approved by Big O may be offered or honored by Franchisee (other than those required by law). Franchisee and Big O shall only honor warranties and guaranties on Products and Services which have been sold to and returned by consumers in accordance with the terms and procedures prescribed in the Manual. Franchisee acknowledges that it will honor any and all warranties and guarantees sponsored or approved by Big O, regardless of where or by whom they were issued. Franchisee shall make no charge to a customer for honoring such a warranty or guaranty unless the charge is permitted by the express terms of the warranty or guaranty or the then current Manual. Big O agrees not to change or revoke any warranty or guaranty without giving Franchisee at least thirty (30) days prior written notice. Warranties or guarantees issued prior to any such revocation or modification shall be honored according to their terms as interpreted in the Manual. 14.05 Open Account Financing. In its sole discretion, Big O may provide Franchisee with open account financing for some or all of the Products and Services it sells Franchisee. Whether or not such credit is offered, Franchisee will be required to execute a security agreement and comply with all other requirements of Big O to secure Franchisee's obligations to Big O under the Franchise Agreement and perfect its security interest therein. If such credit is offered, Franchisee will be required to execute a credit agreement and security agreement and comply with all other requirements of Big O to secure such payments and perfect its security interest therein. Franchisee's failure to comply with any credit terms set forth above shall constitute an event of default of this Agreement. 15. ADVERTISING, MARKETING AND PROMOTIONAL PLANS 15.01 Initial Advertising. Recognizing the value of standardized Advertising programs to the furtherance of the goodwill and public image of the Big O System, the parties agree that within the -11- first year of business, Franchisee is required to spend on Initial Advertising, in addition to the required four percent (4%), the amount specified on the Summary Pages. The exact amount to be spent on Initial Advertising shall be determined by the Franchisee's Local Group and will depend, in part, on Big O's then current presence in the market place, reputation and name recognition. The amount and manner of the Initial Advertising must be approved in advance by Big O. If no Local Group exists for the region where Franchisee's Store is located, then the amount of the Initial Advertising shall be agreed upon by Big O and Franchisee. 15.02 National Advertising Fund. Big O has established a National Advertising Fund which Big O, in its sole discretion, may decide to terminate at any time. If Big O does terminate the National Advertising Fund, Big O, in its sole discretion, may re-establish it at any time. Big O shall notify Franchisee as to the manner in which it shall function and the amount of contribution required of Franchisee. (a) Not later than the Due Date, Big O or its designee must have received from Franchisee such amount as Big O shall designate, but not more than one percent (1%) of its previous month's Gross Sales, as a contribution to the National Advertising Fund which shall be maintained or approved by Big O for Big O National Advertising. Big O shall limit any increase in Franchisee's contribution to the National Advertising Fund from any amount then currently being charged to one-tenth of one percent (.001%) in any twelve (12) consecutive month period and an additional one-tenth of one percent (.001%) for each twelve (12) consecutive months thereafter until the one percent (1%) limitation is reached. Such incremental increases shall not be cumulative so that if Big O fails to adopt an additional incremental increase after any twelve (12) consecutive month period, the next one-tenth of one percent (.001%) incremental increase will not accrue until actually adopted by Big O and shall constitute the maximum for the next consecutive twelve (12) months; provided, however, in the event Big O shall determine, in its sole judgment and discretion, that a special advertising circumstance or opportunity is available to Big O and/or its franchisees, Big O may propose to the Dealer Planning Board a greater increase during any consecutive twelve (12) month period (up to one percent (1%) limit), and if a majority of the members of the Dealer Planning Board agree to such increase, it shall be implemented by Big O, not withstanding Big O's limitation as to the phasing in of any increases. (b) Big O shall, following consultation with the Dealer Planning Board, direct all National Advertising which is provided through the National Advertising Fund with sole discretion over the concepts, materials, and media used therein. All National Advertising Fund contributions paid by Franchisee and other similarly situated Big O System franchisees to Big O shall be part of the National Advertising Fund. (c) Franchisee understands and acknowledges that the National Advertising Fund is intended to maximize general public recognition and acceptance of the Licensed Marks for the benefit of the System as a whole and that Big O undertakes no obligation in administering the National Advertising Fund to insure that any particular franchisee benefits directly or pro rata from the national Advertising. Franchisee agrees that the National Advertising Fund may otherwise be used to meet any and all costs incident to such Advertising; provided that no part thereof shall be used by Big O to defray its general operating expenses other than (i) those reasonably allocable to such Advertising, or (ii) other activities reasonably related to the administration or direction of the National Advertising Fund and its related programs. No refund of contributions to the National Fund shall be due Franchisee upon termination or nonrenewal of this Agreement. (d) Any part of the National Advertising Fund contributions paid to Big O, but not spent by Big O during Big O's fiscal year, which Big O may change in its sole discretion, shall remain in the National Advertising Fund. Any taxes imposed on the National Advertising Fund shall be paid from the National Advertising Fund. -12- (e) The Dealer Planning Board shall have the right to review all expenditures of the National Advertising Fund on a regular basis. 15.03 Local Fund. Franchisee shall also contribute by the Due Date a minimum of four percent (4%) of its Store's Gross Sales for the previous month either to Big O or, if a Local Fund has been established in Franchisee's marketing area, to the Local Fund formed for the purpose of local advertising and operated pursuant to such structure and guidelines as Big O may prescribe or approve. Franchisee agrees to be bound by the decisions of either Big O or its Local Group, if one has been established in Franchisee's marketing area, pertaining to Local Advertising, provided such decisions have been approved by Big O and do not violate any applicable laws. From time to time, the Local Group may agree to increase the amount Franchisee is required to spend for Advertising, but subject to the terms of certain documents already effective on this Agreement's Effective Date, not by more than one percent (1%) of Franchisee's Gross Sales on an annual basis. 15.04 Approval of Advertising. Franchisee or the Local Group shall submit (through the mail, return receipt requested) to Big O for its prior written approval (except with respect to prices to be charged), samples of all marketing materials and advertising to be used by Franchisee that have not been prepared or previously approved in all respects by Big O or its designated agents. Franchisee shall submit tear sheets, receipts, and other evidence of such Advertising in the manner prescribed by Big O. Franchisee will not be required to submit to Big O copies of any proposed Advertising which has been adopted for use by the Local Group and which was previously approved by Big O for use by the Local Group. 16. STATEMENTS AND RECORDS 16.01 Invoices. Every sale of Products and Services from the Franchisee's Store shall be accurately recorded on a consecutively numbered invoice or in such other format as Big O may approve. All invoices, whether voided or used, shall be accounted for by Franchisee. 16.02 Audit. Throughout the term of this Agreement and for two (2) years thereafter, Franchisee shall maintain for not less than three (3) years original, full, and complete records, accounts, books, data, licenses, and contracts which shall accurately reflect all particulars relating to the Franchised Business and such other statistical and other information or records as Big O may require. Big O or its designated agent shall have the right to examine and audit such records, accounts, books, and data during regular business hours or at reasonable times. If any such examination or audit discloses that Franchisee has understated its Store's Gross Sales by more than two percent (2%), Franchisee shall be obliged to reimburse Big O for the cost and expense of such examination or audit. If Franchisee has understated any amount due Big O or any Local Group or Local Fund, it shall tender payment of the amount due not later than ten (10) days following receipt of the auditor's report, plus interest calculated at a rate which is the lower of eighteen percent (18%) per annum or the highest rate permitted by law. If Franchisee has overpaid Big O or such Local Group or Local Fund, such amount will be credited to Franchisee against monthly royalty fees or advertising contributions due to Big O, the Local Group or the Local Fund beginning with the month following receipt of the auditor's report and continuing until the credit is exhausted. 16.03 Monthly Reports. No later than the Due Date, Franchisee shall mail to Big O all payments of royalty fees and advertising contributions and monthly reports due Big O on forms prescribed by Big O, stating the fees or contributions due to Big O which were incurred during the preceding month as specified from time to time by Big O, the Gross Sales at the Premises for the prior month, copies of all sales tax receipts or returns and such other information as Big O may require, all signed and certified as true and correct by Franchisee or Franchisee's Operator. Big O reserves the right to require such reporting to be performed and submitted to Big O electronically. -13- 16.04 Financial Statements. Franchisee shall deliver to Big O, no later than sixty (60) days from the end of each of Franchisee's fiscal quarters, an unaudited profit and loss statement covering the Franchised Business for such quarter and a balance sheet of the Franchised Business as of the end of such quarter, all of which shall be certified by Franchisee as true and correct. All such statements shall be prepared in a format which has been prescribed or approved by Big O. In addition, Franchisee, as well as any guarantor(s) of this Agreement, shall, within thirty (30) days after request from Big O, deliver to Big O a financial statement, certified as correct and current, in a form which is satisfactory to Big O and which fairly represents the total assets and liabilities of Franchisee and any such guarantor(s). 16.05 Management System. Big O has authorized Local Groups to recommend to Big O that certain Management Systems be obtained and used by all their member franchisees. If Franchisee's Local Group persuades Big O that the acquisition of a Management System by all its member Franchisees is necessary to the efficient functioning of a program which is consistent with the Big O System, Franchisee shall, at its sole expense acquire such Management System and place it in service within such time periods as are recommended by the Local Group and approved by Big O. Once a particular Management System or accounting software has been adopted by a Local Group pursuant to the criteria described herein, Franchisee may utilize a different Management System at Franchisee's Store only with Big O's prior written approval. 16.06 Regional Accounting Center. The Franchisee is required to use some or all of the services provided by a Regional Accounting Center operating within the Franchisee's marketing area. 17. COVENANTS 17.01 Noncompetition During Term. Except for any businesses already operating and identified on the Summary Pages, during the term of this Agreement, Franchisee and any guarantor(s) hereof covenant, individually, not to engage in or open any business, other than as a Franchisee of the Big O System, which offers or sells tires, wheels, shock absorbers, automotive services, or other products or services which compete with Big O Products and Services. The purpose of this covenant is to encourage Franchisee and any guarantor(s) hereof to use their best efforts to promote the Big O System, its Products and Services, to protect its Information and trade secrets, and to generate a successful business at the Store. 17.02 Confidentiality. During the term of this Agreement and thereafter, Franchisee covenants not to communicate directly or indirectly, divulge to or use for its benefit or the benefit of any other person or legal entity, any trade secrets which are proprietary to Big O or any Information, knowledge, or know-how deemed confidential under Section 13 hereof, except as permitted by Big O. The protection granted hereunder shall be in addition to and not in lieu of all other protections for such trade secrets and confidential Information as may otherwise be afforded in law or in equity. 17.03 No Interference with Business. Franchisee agrees that during the term of this Agreement that it shall not divert or attempt to divert any business of or any actual customers of the Big O System to any competitive business, by direct or indirect inducement or otherwise. 17.04 Post Termination Covenant Not to Compete. If Franchisee terminates this Agreement other than in a manner prescribed by Section 19.03 or if this Agreement is terminated for "good cause" as defined in Section 19.01, Franchisee and its guarantors covenant that they shall not directly or indirectly, for a period of two (2) years after the Termination Date of this Agreement, engage in any business, other than as a Franchisee of the Big O System, which offers or sells tires, wheels, shock absorbers, automotive services, or other products or services which compete with Big -14- O Products and Services within a ten (10) mile radius of the Premises or within a ten (10) mile radius of any other Big O Store which was operational or under construction on the Termination Date. If a former Franchisee or guarantor commits a breach of this Section 17.04, the two year period shall start on the date that the former Franchisee or guarantor is enjoined from competing or stops competing, whichever is later. 17.05 Survivability of Covenants. The parties agree that each of the foregoing covenants shall be construed as independent of any other covenant or provision of this Agreement. If all or any portion of a covenant in this Section 17 is held unenforceable by a court or agency having valid jurisdiction in an unappealed final decision to which Big O is a party, Franchisee expressly agrees to be bound by any lesser covenant imposing the maximum duty permitted by law that is subsumed within the terms of the covenant, as if the resulting covenant were separately stated in and made a part of this Section 17. Franchisee further expressly agrees that the existence of any claim it may have against Big O, whether or not arising from this Agreement, shall not constitute a defense to the enforcement by Big O of the covenants in this Section 17. The covenants in this Section 17 shall survive the Termination Date or Expiration Date of this Agreement. 17.06 Modification of Covenants. Franchisee understands and acknowledges that Big O shall have the right, in its sole discretion, to reduce the scope of any covenant set forth in this Section 17 or any portion hereof, without Franchisee's consent, effective immediately upon receipt by Franchisee of written notice thereof; and Franchisee agrees that it shall comply immediately with any covenant as so modified. 18. TRANSFER AND ASSIGNMENT 18.01 Assignment by Big O. This Agreement and all rights and duties hereunder may be freely assigned or transferred by Big O and shall be binding upon and inure to the benefit of Big O's successors and assigns. 18.02 Right of First Refusal. Because Big O or someone known to Big O may be interested in purchasing Franchisee's Franchised Business, the Premises, or an interest in either, if Franchisee decides to make a Transfer, Franchisee agrees to offer in writing to make the Transfer to Big O, and describe the terms under which Franchisee offers to make such a Transfer. If Big O has not offered to purchase what the Franchisee has offered to Transfer to Big O within thirty (30) days after Big O receives the notice from Franchisee, Franchisee may then offer to make the Transfer to third parties on the same or not more favorable terms and conditions as were offered to Big O. If Franchisee does not consummate the Transfer within six months after Franchisee gives notice of the Transfer to Big O, Franchisee shall not make the Transfer without again first offering to make the Transfer to Big O. 18.03 Transfer Legend. Franchisee understands and acknowledges that the rights and duties set forth in this Agreement are personal to Franchisee and that Big O has granted the Franchise in reliance on Franchisee's personal background, business skills, experience, and financial capacity. It is important to Big O that Franchisee be known to Big O and always meet Big O's standards and requirements. Accordingly, neither Franchisee nor any Shareholder shall be permitted or have the power, without the prior written consent of Big O, to make a Transfer. To assure compliance by Franchisee with the transfer restrictions contained in this Section 18, all share or stock certificates of Franchisee shall at all times contain a legend sufficient under applicable law to constitute notice of the restrictions on such stock contained in this Agreement and to allow such restrictions to be enforceable. Such legend shall appear in substantially the following form: -15- "The sale, transfer, pledge, or hypothecation of this stock is restricted pursuant to the terms of Section 18 of a Franchise Agreement dated _____________________ between Big O Tires, Inc, and the issuer of these shares." Any Transfer which does not comply with the terms of this Section 18 shall be null and void. 18.04 Pre-Conditions to Franchisee's Assignment. If Franchisee or any Shareholder desires to make a Transfer, such person or entity must comply with the following terms, conditions, and procedures to effectuate a valid Transfer: (a) If any proposed assignment of any rights under this Agreement, or if any other Transfer which, when aggregated with all previous Transfers, would in the reasonable opinion of Big O, result in the transfer of effective control over the ownership and/or operation of the Premises or Franchisee or the Franchised Business: (i) The transferee must apply for a Big O franchise and must meet all of Big O's then current standards and requirements for becoming a Big O franchisee (which standards and requirements need not be written); and (ii) The transferee shall execute the then current form of Franchise Agreement generally issued by Big O with respect to comparable Big O franchisees. Such agreement shall generally provide for a new term equal to the term of the standard Big O franchise agreement then being offered, and may include, without limitation, different fee structures, modified Trade Areas and/or increased fees; (b) Regardless of the degree of control which would be affected by a proposed Transfer: (i) Franchisee shall first notify Big O in writing of any bona fide proposed Transfer and set forth a complete description of all terms and fees of the proposed Transfer in the manner prescribed by Big O, including the prospective transferee's name, address, financial qualifications, and previous five (5) years business experience; (ii) Big O or its assignee may, within thirty (30) days after receipt of such notice, exercise the Option to purchase the interest being offered by Franchisee or any Shareholder; (iii) If Big O or its assignee fails to exercise the Option to purchase the interest, Big O shall, within thirty (30) days after receipt of the notice of the Option, notify Franchisee in writing of its approval or disapproval of the prospective transferee. Big O's approval will be granted only if the prospective transferee, its Shareholders, partners, and/or Operator: meets Big O's then current standards for new franchisees, which standards need not be in writing; demonstrates to Big O's satisfaction that it or its Operator meets Big O's managerial, business, and technical standards; possesses a good moral character, business reputation, and satisfactory credit rating; and has the aptitude, ability, and financial capacity to operate the Franchised Business (as may be evidenced by prior related business experience or otherwise). Big O reserves the right to disallow a transfer of the Premises (without a transfer of the Franchised Business) to a person which would operate a business from the Premises which sells or offers for sale products or services which are the same as or similar to those offered for sale through the Franchised Business; -16- (iv) If Big O approves the proposed transferee, Franchisee or the Shareholder may transfer the interest to the proposed transferee at a price and under terms and conditions which are not more favorable than the terms offered to Big O. Big O's approval is conditioned upon the proposed transferee or its Operator having completed (to the satisfaction of Big O) the training program then currently required of Big O franchisees or Operators; (v) Prior to the consummation of any such Transfer, Franchisee shall pay all amounts due to Big O and cure all other breaches of this Agreement and any other agreement or loan document it may have with Big O; (vi) Big O will, as a condition of any Transfer involving a change in control of Franchisee, the Store or its Assets, require Franchisee or Transferee to pay a transfer fee (but no initial franchise fee) to reimburse Big O for any expenses which may be incurred in its review, analysis, and preparation of any documentation relating to the Transfer, including legal and accounting fees, any required training and additional assistance as may be requested by the Franchisee related to the Franchisee's resale of the Store. The transfer fee will range between $4,500 and the amount of the then current initial franchise fee, the exact amount within that range to be based on Big O's actual costs incurred. Big O shall be the sole arbiter of whether a change of control occurred as a result of a single Transfer or a group of Transfers; For any transfer of less than fifty percent (50%) of Franchisee's ownership, Big O will, as a condition of any Transfer involving less than fifty percent (50%) of Franchisee's ownership in the Franchise, the store or its assets, require the Franchisee or the transferee to pay a transfer fee (but no initial franchise fee) to reimburse Big O for any expenses which may be incurred in its review, analysis and preparation of any documentation relating to the Transfer, including legal and accounting fees and additional assistance as may be requested by the Franchisee related to the resale of the Store. The transfer fee will be $500. However, if such Transfer consumes an inordinate amount of time (in excess of ten (10) hours of cumulative Big O personnel time) the Franchisee or the Transferee may be billed the then current billable hour rate, which is currently in addition to the $500 fee. The transferee will be charged no other initial franchise fee. Big O shall be the sole arbiter of whether a change of control will occur as a result of a single Transfer or a group of Transfers. (vii) Big O may require any transferor of any partnership interest, shares of stock, or any other interest of any kind or nature in Franchisee to guarantee the obligations of Transferee under this Agreement or under any new Franchise Agreement entered into between transferee and Big O; (viii) Prior to approving a Transfer of the controlling interest in Franchisee, the Franchised Business, or the Premises, Big O may inspect Franchisee's Store and as a result of such inspection, Big O may prepare a "Punch List" setting forth the necessary repairs, maintenance, or other upgrading of the Store which will become a condition of Big O's approval of the Transfer; and (ix) If the Franchisee acquired its interest in the Franchise as a Pioneer, Converter, or pursuant to a Development Agreement or Manager Incentive Contract, and the Franchisee makes a Transfer of its interest within two (2) years of the Effective Date of this Agreement, the Franchisee must pay Big O as a condition of -17- such Transfer the difference between the initial franchise fee paid by Franchisee and twenty-one thousand dollars ($21,000.00), the standard initial franchisee fee charged by Big O for new franchises when Franchisee executed this Agreement. (x) Franchisee shall comply with all other applicable transfer requirements as designated in the Confidential Operating Manual or otherwise in writing. 18.05 Death of Franchisee. Notwithstanding any other provision in this Section 18, if a Survivor desires to acquire or retain the interest of a decedent of a Franchisee or in a Franchisee and continues to operate the Franchised Business pursuant to the System, the Survivor may do so under the terms of this Agreement subject only to: (a) The Survivor's execution and delivery to Big O of a written agreement to be bound: (i) By the terms of this Agreement; and (ii) By the terms of any guaranty of this Agreement; (b) Satisfactory completion of initial training by the Survivor, Survivor's Operator, or Manager and such other managerial personnel as Big O may designate within the time periods prescribed by Big O; and (c) The Survivor's payment of all travel, lodging, food, and similar expenses incurred by it or its Operator or managerial personnel in attending the training prescribed by Section 11.02. If the Survivor does not desire to acquire or retain such interest, then the Survivor shall have a reasonable period of time, but no more than six (6) months, to make a Transfer to a transferee acceptable to Big O subject to compliance with the procedures set forth in this Section 18, provided, the Survivor throughout such period fulfills all duties of Franchisee under this Agreement. 18.06 No Waiver. Big O's consent to a Transfer hereunder shall not constitute a waiver of any claims Big O may have against Franchisee or the transferring party or Big O's right to demand exact compliance with any provision of this Agreement. 18.07 Excepted Transfers. The provisions of Section 18.02 and 18.04(b)(ii) shall not apply to: (a) any Transfer to a spouse, parent, child, or sibling of Franchisee or any Shareholder; (b) a Transfer to Franchisee's Operator or Manager pursuant to the terms of a Manager Incentive Contract which complies in all respects with the standards approved or prescribed by Big O; or (c) a Transfer to a spouse, parent, child, or sibling of Franchisee or any Shareholder which, in the aggregate, amounts to a Transfer of less than a controlling interest in Franchisee, the Franchised Business, or the Premises. 19. DEFAULT AND TERMINATION 19.01 Termination by Big O. Big O may terminate this Agreement for good cause, without prejudice to the enforcement of any legal or equitable right or remedy, immediately upon giving written notice of such termination and the reason or cause for the termination, and, except as hereinafter provided, without providing Franchisee an opportunity to cure the default. Without in any way limiting the generality of the meaning of the term "good cause", the following occurrences shall constitute sufficient basis for Big O to terminate the Agreement: -18- (a) If Franchisee fails to pay any financial obligation pursuant to this Agreement including, but not limited to, payments to Big O or any other supplier for Products and Services, and fails to cure such failure to pay within five (5) days after Big O gives Franchisee a written notice of default; (b) If Franchisee fails to perform or breaches any covenant, obligation, term, condition, warranty, or certification herein and fails to cure such non-compliance within thirty (30) days after Big O gives Franchisee written notice of default; (c) If Franchisee fails to open the Store and commence business within eighteen (18) months of the Effective Date of this Agreement, or if Franchisee fails to commence business on such other Commencement Date as the parties hereto may have agreed; (d) If Franchisee makes, or has made, any materially false statement or report to Big O in connection with this Agreement or the application therefor; (e) If Franchisee operates the Franchised Business in a manner contrary to or inconsistent with the Licensed Marks or as specified by Big O in the Manual, and Franchisee fails to cure such deficiency within thirty (30) days after Big O gives a written notice of default; (f) If Franchisee, a Shareholder, guarantor, or transferee violates any transfer and assignment provision contained in Section 18 of this Agreement; (g) If Franchisee receives from Big O more than three (3) valid notices of default of this Agreement in the same twelve (12) month period, regardless of whether previous defaults have been cured; (h) If Franchisee fails to operate or keep the Franchised Business open for more than five (5) consecutive business days without Big O's express written approval, or if Franchisee ceases to operate all or any part of the Franchised Business conducted under this Agreement or defaults under any loan, lending agreement, mortgage, deed of trust or lease with any party covering the Premises, and such party treats such act or omission as a default, and Franchisee fails to cure such default to the satisfaction of such party within any applicable cure period granted Franchisee by such party; (i) If Franchisee or any person owning an interest in Franchisee is convicted of any felony or crime of moral turpitude regardless of the nature thereof, or any other crime or offense relating to the operation of the Franchised Business, or if Franchisee engages in any conduct which reflects materially and unfavorably upon the operation of the Franchised Business; (j) If Franchisee becomes insolvent or makes a general assignment for the benefit of creditors, or if a petition in bankruptcy is filed by Franchisee, or such a petition is filed against and consented to by Franchisee, or if a bill in equity or other proceeding for the appointment of a receiver of Franchisee or other custodian for Franchisee's business or assets is filed and consented to by Franchisee, or if a receiver or other custodian (permanent or temporary) of Franchisee's assets or property, or any part thereof, other than as described in Section 18.05, is appointed; (k) If Franchisee or any guarantor(s) hereof defaults in any other agreement or loan document with Big O or if Franchisee defaults under the terms of any lease of the Premises or if Franchisee fails to comply with the requirements of any Local Group operating pursuant to standards prescribed or approved by Big O including, but not limited to, any requirement to pay dues or make advertising contributions, and such default is not cured in accordance -19- with the terms of such other agreement, loan document, or lease, or the by-laws of the Local Group; (l) If Franchisee fails, for a period of ten (10) days after notification of non-compliance, to comply with any law or regulation applicable to the operation of the Franchised Business; (m) If Franchisee sells, offers for sale, or gives away at the Premises any products or services which have not been previously approved by Big O in writing, or which have been subsequently disapproved; (n) If Franchisee shall have understated its Gross Sales to Big O by more than two percent (2%) on two (2) or more occasions; or (o) If a court of competent jurisdiction or an arbitration tribunal in a final and unappealed judgment determines that any significant amount of the payments or compensation which Franchisee has agreed to pay Big O pursuant to the terms hereof is unlawful, or that all or a significant part of Franchisee's payment obligations hereunder are void or voidable by Franchisee. If a different notice or cure period or good cause standard is prescribed by applicable law, it shall apply to a termination of the Franchise Agreement. Remedies to Big O. If the Franchisee is in default and has failed to cure such default in a manner prescribed by the Franchise Agreement, in addition to the rights Big O has to terminate the agreement, the Franchisee agrees to pay to Big O, among the many remedies available to Big O, royalties and any lost gross profits. 19.02 Governing State Law. If a different notice or cure period or good cause standard is prescribed by applicable law, it shall apply to a termination of this Agreement. 19.03 Termination by Franchisee. Franchisee may only terminate this Agreement if Big O has committed a material breach of any of Big O's obligations under this Agreement and has failed to cure such breach within thirty (30) days after Franchisee has given written notice to Big O of such breach. 19.04 Force Majeure. Notwithstanding anything contained in this Agreement to the contrary, neither party shall be in default hereunder by reason of its delay in performance of, or failure to perform, any of its obligations hereunder, if such delay or failure is caused by: (a) strikes or other labor disturbance; (b) acts of God, or the public enemy, riots or other civil disturbances, fire, or flood; (c) interference by civil or military authorities; (d) compliance with governmental laws, rules, or regulations which were not in effect and could not be reasonably anticipated as of the date of this Agreement; (e) delays in transportation, failure of delivery by suppliers, or inability to secure necessary governmental priorities for materials; or (f) any other fault beyond its control or without its fault or negligence. In any such event, the time required for performance of such obligation shall be the duration of the unavoidable delay. -20- 20. POST TERMINATION OBLIGATIONS 20.01 Post-Termination Obligations. Upon the expiration or termination of this Agreement by any means or for any reason, Franchisee shall immediately: (a) Cease to be a Franchisee of Big O and cease to operate the former Franchised Business under the Big O System. Franchisee shall not thereafter, directly or indirectly, represent to the public that the former Franchised Business is or was operated or in any way connected with the Big O System or hold itself out as a present or former Franchisee of Big O; (b) Pay all sums owing to Big O. Upon termination for any default by Franchisee, such sums shall include actual and consequential damages, costs, and expenses incurred by Big O as a result of the default; (c) Return to Big O the (i) Confidential Operating Manual, Blue II, any training modules or other proprietary information and supplements thereto and all trade secrets and confidential materials owned or licensed by Big O and all copies thereof other than Franchisee's copy of the Franchise Agreement, copies of any correspondence between the parties, and any other document which Franchisee reasonably needs for compliance with any applicable law; (ii) return or discontinue use of all forms, advertising matter, marks, devises, insignias, slogans, designs, signs, any computer systems including BOSS/2/ software and/or hardware; and (iii) discontinue the use of all copyrights, Licensed Marks, tradenames and patents now or hereafter applied for or granted in connection with the operation of the Franchise. (d) Provide Big O, upon its request, with a complete list of any outstanding obligations Franchisee may have to any third parties including outstanding customer orders. Big O shall have the right, but not the obligation, to fill any such outstanding customer orders generated by Franchisee and in such event, Franchisee shall immediately reimburse Big O for any costs or expenses incurred by Big O in doing so. In addition, Big O shall have the right to cancel any orders placed by Franchisee for which delivery has not been made; (e) Take such action as may be required by Big O to transfer and assign to Big O or its designee all telephone numbers, white and yellow page telephone references and advertisements, and all trade and similar name registrations and business licenses, and to cancel any interest which Franchisee may have in the same. The Franchisor is hereby appointed as the Franchisee's attorney-in-fact for such purpose and such power, being coupled with an interest, shall be irrevocable; (f) Cease to use in Advertising, or in any manner whatsoever, any methods, procedures, or techniques associated with the Big O System in which Big O has a proprietary right, title, or interest; cease to use the Licensed Marks, and any other marks and indicia of operation associated with the Big O System and remove or change all Trade Dress, Products and Services, and other indicia of operation under the Big O System from the Premises, at Franchisee's expense and in a manner satisfactory to Big O. Unless otherwise approved in writing by Big O, Franchisee shall return to Big O all copies of materials bearing the Licensed Marks; and (g) If during the term of Franchisee's Franchise Agreement, the Franchisee has made available to its customers, the ability to purchase Products and Services from Franchisee's Store by the use of the Big O credit card with American General Finance, upon termination the Franchisee shall cease accepting such card from any future customers. -21- (h) Franchisee shall immediately make available to Big O all customer lists as such was developed while a Franchisee. (i) Strictly comply with all other provisions of this Agreement pertaining to post-termination obligations, including, without limitation, those contained in Sections 13 and 17. (j) Any tire adjustments existing as of the Termination Date shall be referred to other existing LSCs, RSCs or other Stores for processing. Franchisee shall receive no allowance for tire adjustments upon termination. 20.02 Right to Repurchase. Big O shall have the right, but not the obligation, to purchase: (a) Some or all of the Products and Services and supplies at the Store and the equipment, furnishings, fixtures, or signs at the Premises which bear the Licensed Marks for a mutually agreed upon price within thirty (30) days of the Termination Date or the Expiration Date. (b) If Big O elects to exercise such a right, it may offset the purchase price against any other amounts owed by Franchisee to Big O pursuant to this or any agreement or loan document. Before exercising any such rights, Big O shall have the right to enter upon the Premises during reasonable hours to take an inventory of the Franchised Business. 20.03 Right of First Refusal. Upon receipt by Franchisee of an offer to purchase Franchisee's Products and Services, equipment, supplies, fixtures or signs at the Premises, Franchisee hereby grants Big O a right of first refusal to purchase any of such items by matching the bona fide monetary purchase price and payment schedule terms, less any brokerage commission without having to match any other non-monetary terms of the proposed purchase by Franchisee's buyer(s). Franchisee must give Big O written notice of any such bona fide offer. If within thirty (30) days after receipt of such notice, Big O has neither exercised its right of first refusal nor notified Franchisee of its rejection thereof, Franchisee may sell such items as were covered by the offer at the expiration of the thirty (30) day period. 20.04 De-Identification of Assets Upon Sale. If Big O determines not to exercise its option to repurchase any such items, Franchisee may continue to sell its remaining Products and Services, equipment, supplies, and fixtures, but may not identify itself as a Big O Franchisee. Franchisee shall otherwise abide by the terms of this Section 20. 21. INSURANCE 21.01 Insurance Coverage. Franchisee shall, at its expense and no later than upon the Commencement Date, procure and maintain in full force and effect throughout the term of this Agreement either the approved Big O Dealers National Insurance Program ("Program") then in effect or the types of insurance enumerated in this Agreement, which shall be in such coverages, limits and amounts as may from time to time be required by Big O, and which shall designate Big O, its directors, officers, employees, agents and other Big O designees as additional named insured(s). Unless otherwise agreed to by Big O, Franchisee shall procure and maintain whichever limits and coverages are greater in a comparison of the insurance enumerated in the Manual and the insurance enumerated in the Program. If the Franchisee chooses not to procure insurance pursuant to the Program, Franchisee shall procure the following insurance coverages, limits and amounts: -22- (a) Workers' Compensation insurance with statutory limits for Coverage A as prescribed by the statutes of the state of the Franchised Business; including Coverage B, Employers Liability, with limits not less than or equivalent to $500,000 each person, $500,000 each occurrence, and $500,000 annual aggregate; (b) Comprehensive or Commercial General Liability insurance covering all operations and premises of the Franchised Business, including but not limited to Product Liability, Completed Operations Liability, Personal Injury Protection, Advertisers Liability, Fire Legal Liability, Medical Payments, and Contractual Liability, with limits not less than the equivalent of $2,000,000 per occurrence combined single limit for bodily injury and property damage; (c) Vehicular/Automobile Liability insurance, including Uninsured Motorist and Medical Payments, covering owned, non-owned, hired, leased or other vehicles associated, directly or indirectly, with the Franchised Business, with limits of not less than the equivalent of $1,000,000 per occurrence combined single limit for bodily injury and property damage; (d) "All Risk" Property insurance covering risk of loss to real and personal property; including but not limited to, Accounts Receivable, Valuable Papers, Glass, Signs, Employees' Tools, Loss of Rents, and other building contents - including flood and earthquake coverage if appropriate for the location of the specific Franchised Business-for repair/replacement coverage and valuation of all assets. This coverage will include Business Income/Extra Expense insurance for extra expenses incurred and/or profits lost due to a covered, "All Risk" peril (Business Interruption Valuation Worksheets will be submitted by Franchisee to Big O annually for evaluation and approval). Any coinsurance provisions should apply only to values reported and should have no adverse impact on claim settlement (an Agreed Amount Endorsement should be obtained, if possible); (e) Inland Marine insurance covering all signs, tools and equipment, and cargo being transported by rail, motortruck, or other common carrier conveyances where the Franchised Business has title or responsibility for transported goods, with limits of no less than $10,000 per any one conveyance; (f) Garage Liability and Garagekeepers Legal Liability insurance covering all vehicle storage, garage premises and other operations arising out of the Franchised Business and non-owned use and/or operation of vehicles, with Garage Liability limits of not less than the equivalent of $2,000,000 per occurrence combined single limit for bodily injury and property damage and Garagekeepers Legal Liability of not less than the equivalent of $100,000 per location; (g) Boiler and Machinery insurance covering all real and personal property; including, but not limited to, pressure vessels, machinery, piping, tubing and other high and low pressurized items at the Franchised Business for the repair/replacement valuation of all assets. This coverage shall include Business Income/Extra Expenses insurance for additional expenses incurred and/or profits lost; (h) Comprehensive Fidelity/Crime insurance covering Employee Dishonesty with limits no less than $25,000; Forgery with limits no less than $10,000; Money and Securities Inside Premises with limits no less than $10,000; and Money and Securities Outside Premises with limits no less than $10,000; and (i) Commercial Umbrella Liability insurance covering all underlying liability insurance coverages enumerated in this section, with no gaps between underlying and umbrella limits or coverage with excess and primary limits of no less than the equivalent of $3,000,000 per occurrence combined single limit for bodily injury and property damage. -23- 21.02 Proof of Insurance. Prior to the Commencement Date, Franchisee shall make timely delivery of a signed original certificate or certificates of all required insurance coverages to Big O, which shall contain the authorized agent's business name, address and phone number, together with a statement by the insurer that the policy will not be cancelled or materially changed without at least thirty (30) days prior written notice to Big O that the alteration or cancellation is being made. All insurance coverages will be underwritten by a company acceptable to Big O, with a Best's Rating of no less than "A-" or a financial statement of the insurer approved by Big O. If Franchisee fails to purchase required insurance conforming to the standards prescribed by Big O, Big O may obtain such insurance for Franchisee, and Franchisee shall pay Big O the cost of such insurance plus a ten percent (10%) administrative surcharge. 21.03 Survival of Indemnification. The procurement and maintenance of the greater of the prescribed insurance coverages set forth in the Manual or those set forth in the Program shall not relieve Franchisee of any liability to Big O assumed under any indemnification requirement of this Agreement. If Big O deems it appropriate, the Franchisee shall, upon Big O's request, provide to Big O a true, complete certified copy of all, or a part of the Franchisee's insurance policies within 10 days of receiving such request. In addition, upon Big O's request, the Franchisee shall provide to Big O renewal certificates of insurance, or certified insurance binders, for all required coverages no fewer than 10 days before the indicated anniversary date(s) of such insurance coverages. 22. TAXES, PERMITS, AND INDEBTEDNESS 22.01 Payment of Taxes. Franchisee shall promptly pay when due any and all federal, state, and local taxes including without limitation, unemployment and sales taxes, levied or assessed with respect to any Products and Services distributed or sold pursuant to this Agreement and all accounts or other indebtedness of every kind incurred by Franchisee in the operation of the Franchised Business. 22.02 Compliance with Laws. Franchisee shall comply with all applicable federal, state, and local laws, rules and regulations, including, without limitation, environmental laws related to tire disposal. Franchisee shall obtain any and all permits, certificates, and licenses required for the full and proper conduct of the Franchised Business. 22.03 Payment of Debts. Franchisee hereby expressly covenants and agrees to accept full and sole responsibility for any and all debts and obligations incurred in the operation of the Franchised Business. 23. INDEMNIFICATION AND INDEPENDENT CONTRACTOR STATUS 23.01 Indemnification. Franchisee agrees to protect, defend, indemnify, and hold Big O and its affiliates, their directors, officers, shareholders, employees and agents jointly and severally, harmless from and against all claims, actions, proceedings, damages, costs, expenses and other losses (including death) and liabilities, consequently, directly or indirectly incurred (including, without limitation, attorneys', accountants' and other related fees) as a result of, arising out of, or connected with the operation of the Franchised Business, including, without limitation, the failure of Franchisee to comply with any relevant environmental and tire disposal laws. Franchisee shall not, however, be liable for claims arising exclusively as a result of Big O's intentional or fraudulent acts or omissions or sole negligence. 23.02 Independent Contractor. In all dealings with third parties, including, without limitation, customers, employees, and suppliers, Franchisee shall disclose in an appropriate manner acceptable -24- to Big O that it is an independent entity operating under a franchise granted by Big O. Franchisee shall submit all applications and enter into all contracts in its designated corporate name or such other fictitious names which have been approved by Big O, but not in the name "Big O Tires" or in any other name which includes the name "Big O". Nothing in this Agreement is intended by the parties hereto to create a fiduciary relationship between them nor to constitute Franchisee or Franchisee's employees or contractors as an agent, legal representative, subsidiary, joint venturer, partner, employee, or servant of Big O for any purpose whatsoever. It is understood and agreed that Franchisee is an independent contractor and is in no way authorized to make any contract, warranty, or representation or to create or imply any obligation on behalf of Big O. 24. WRITTEN APPROVALS, WAIVERS, AND AMENDMENT 24.01 Written Approval. Whenever this Agreement requires Big O's prior approval, Franchisee shall make a timely written request. Unless a different time period is specified in this Agreement, Big O shall respond with its approval or disapproval within fifteen (15) business days. 24.02 Waiver. No failure of Big O to exercise any power reserved to it by this Agreement and no custom or practice of the parties at variance with the terms hereof shall constitute a waiver of Big O's right to demand exact compliance with any of the terms herein. A waiver or approval by Big O of any particular default by Franchisee or any other Big O franchisee or acceptance by Big O of any payments due hereunder shall not be considered a waiver or approval by Big O of any preceding or subsequent breach by Franchisee of any term, covenant, or condition of this Agreement. Big O shall not be deemed to have waived any of its rights under this Agreement, including any right to receive payment in full for any Product or Service provided, nor shall Franchisee be deemed to have been excused from performance of any of its obligations pursuant to this Agreement, unless such waiver or excuse is written and executed by an authorized representative of Big O and Franchisee. 24.03 Modification. No amendment, change, or variance from this Agreement shall be binding upon either Big O or Franchisee except by mutual written agreement. If an amendment of this Agreement is executed at Franchisee's request, any legal fees or costs of preparation of such amendment and any amendment of a franchise registration arising in connection therewith shall be paid by Franchisee. 25. DEALER PLANNING BOARD 25.01 Dealer Planning Board. Big O has established a Dealer Planning Board ("DPB"), consisting of franchisee representatives, which is designed to assist Big O's management in the development of its strategic business plan and to advise Big O's management on issues of concern to Big O franchisees. Through a representative elected from Franchisee's Local Group, Franchisee shall be represented on the DPB. 25.02 Special Interest Issues. Big O has granted the DPB the authority to participate with Big O's management in making policy decisions relating to issues in which the DPB is deemed to have a special interest. The issues of "Special Interest" include: (a) advertising policies and the creation of a National Advertising Fund; (b) standards of operation; and the implementation of new programs which may require the addition of new equipment and fixtures for the store; (c) selection of Products and Services offered at Big O Stores; and -25- (d) changes in the Licensed Marks anticipated to require the majority of franchisees to expend more than five thousand dollars ($5,000.00) per Store. 25.03 Disapproval of Management Proposal. With respect to those issues in which the DPB has a Special Interest, the DPB may, after consulting with the members of the Local Groups, vote to disapprove a proposal of Big O's management. If, pursuant to established procedures which have been approved by Big O, the DPB shall disapprove a proposal of Big O's management, the proposal may only become effective if, following a presentation to the Big O board of directors by a representative of the DPB, Big O's board of directors votes to adopt management's proposal. 25.04 Compliance with Modification. Franchisee agrees to comply with any and all modifications to Big O's standards of operation, procedures, or other requirements adopted pursuant to the procedures described in this Section 25. 26. RIGHT OF OFFSET 26.01 Right of Offset. Big O shall have the right at any time before or after termination of this Agreement, without notice to Franchisee, to offset any amounts or liabilities that may be owed by the Franchisee to Big O against any amounts or liabilities that may be owed by Big O to Franchisee under this Agreement or any other agreement, loan, transaction or relationship between the parties. 27. ENFORCEMENT 27.01 Declaratory and Injunctive Relief. Big O or its designee shall be entitled to obtain without bond, declarations, temporary and permanent injunctions, and orders of specific performance: (a) To enforce the provisions of this Agreement relating to: (i) Franchisee's use of the Licensed Marks; (ii) the obligations of Franchisee upon termination or expiration of this Agreement; or (iii) the Transfer and Assignment requirements of Section 18; or (b) to prohibit any act or omission by Franchisee or its employees that: (i) constitutes a violation of any applicable law or regulation; (ii) is dishonest or misleading to prospective or current customers or clients of businesses operated under the System; (iii) constitutes a danger to other Big O franchisees, their employees, customers, clients or the public; or (iv) may impair the goodwill associated with the Licensed Marks. 27.02 Costs of Enforcement. If Big O secures any declaration, injunction or order of specific performance pursuant to Section 27.01 hereof, if any provision of this Agreement is enforced at any time by Big O or if any amounts due from Franchisee to Big O are, at any time, collected by or through an attorney at law or collection agency, Franchisee shall be liable to Big O for all costs and expenses of enforcement and collection including, but not limited to, court costs and reasonable attorneys' fees, including the fair market value of any time expended by legal counsel employed by Big O. 28. NOTICES 28.01 Notices. Any notice required to be given hereunder shall be in writing and shall be mailed by registered or certified mail. Notices to Franchisee and Big O shall be addressed to them at their addresses as listed on the Summary Pages or to such other addresses as the parties may hereafter prescribe. A copy of each notice to Big O shall be addressed to Franchisee's designated regional representative. Any notice complying with the provisions hereof shall be deemed to be given on the date of mailing. -26- 29. GOVERNING LAW 29.01 Governing Law. This Agreement is accepted by Big O in the State of Colorado and shall be governed by and interpreted in accordance with Colorado law, which law shall prevail in the event of any conflict of law. Big O and Franchisee consent to personal and subject matter jurisdiction and venue in Denver, Colorado. 29.02 Jurisdiction. The parties hereto agree that it is in their best interest to resolve disputes between them in an orderly fashion and in a consistent manner. Therefore, the parties consent to the exclusive jurisdiction of either Colorado state courts or the United States Federal District Court for the District of Colorado for any litigation relating to this Agreement or the operation of the Franchised Business thereunder. Franchisor and Franchisee irrevocably constitute and appoint the persons designated on paragraphs 10 and 11 of the Summary Pages to be their true and lawful agents, to receive service of any lawful process in any civil litigation or proceeding arising under this Agreement, and service upon such agent shall have the same force and validity as if personal service had been obtained on the other party; provided that notice of service and a copy of any process served shall be sent by registered or certified mail, addressed to the other party at the address specified herein. 30. SEVERABILITY AND CONSTRUCTION 30.01 Severability. Subject to Section 19.01(o), should any part of this Agreement, for any reason, be declared invalid by a court of competent jurisdiction, such decision or determination shall not affect the validity of any remaining portion and such remaining portion shall remain in force and effect as if this Agreement had been executed with the invalid portion eliminated; provided, however, that in the event of a declaration of invalidity, the provision declared invalid shall not be invalidated in its entirety, but shall be observed and performed by the parties to the extent such provision is valid and enforceable. The parties hereby agree that any such provision shall be deemed to be altered and amended to the extent necessary to effect such validity and enforceability. 30.02 Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but such counterparts together shall constitute one and the same instrument. 30.03 Construction. The headings and captions contained herein are for the purpose of convenience and reference only and are not to be construed as part of this Agreement. All terms and words used herein shall be construed to include the number and gender as the context of this Agreement may require. The parties agree that each section of this Agreement shall be construed independently of any other section or provision of this Agreement. 31. ACKNOWLEDGEMENTS (a) Big O acknowledges that Franchisee's principal interest in obtaining the Franchise granted herein is to obtain Big O private brand tires and a competitive source of supply for Products and Services. Big O acknowledges its obligation to seek to attempt, with no obligation, to maintain a competitive source of supply for the benefit of its franchisees and to aid in the promotion of Big O Products and Services. (b) Franchisee understands and acknowledges that the business licensed under this Agreement involves business risks and that Franchisee's volume, profit, income and success is dependent primarily upon Franchisee's ability as an independent business operator. -27- (c) Big O expressly disclaims the making of, and Franchisee acknowledges that it has not received from any representative of Big O, any warranty or guaranty, express or implied, as to the obligation of Big O to provide Franchisee with any specific or sufficient amount of Products and Services or as to the potential volume, profit, income or success of the Franchised Business. (d) Franchisee acknowledges that Big O or its agent has provided Franchisee with a Franchise Offering Circular not later than the earlier of the first personal meeting held to discuss the sale of the Franchise, ten (10) business days before the execution of this Agreement, or ten (10) business days before any payment of any consideration connected to the purchase of this Franchise. Franchisee further acknowledges that Franchisee has read such Franchise Offering Circular and understands its contents. (e) Franchisee acknowledges that Big O has provided Franchisee with a copy of this Agreement and all related documents, fully completed, for at least five (5) business days prior to Franchisee's execution hereof. (f) Franchisee acknowledges that Big O has advised it to consult with its own attorneys, accountants, or other advisers, that Franchisee has had ample opportunity to do so, and that the attorneys for Big O have not advised or represented Franchisee with respect to this Agreement or the relationship hereby created. The name and address of Franchisee's adviser, if any, is set forth on the Summary Pages. (g) Franchisee acknowledges that this Agreement, the documents referred to herein, the attachments hereto, and other agreements signed concurrently with this Agreement, if any, constitute the entire, full and complete Agreement between Big O and Franchisee concerning the subject matter hereof. This Agreement terminates and supersedes any prior agreement between the parties concerning the same subject matter, and any oral or written representations which are inconsistent with the terms of this instrument and its accompanying Franchise Offering Circular. (h) Franchisee acknowledges and recognizes that different terms and conditions, including different fee structure and investment requirements may pertain to different Big O franchises offered in the past, contemporaneously herewith, or in the future, and that Big O does not represent that all franchise agreements are or will be identical. (i) Franchisee acknowledges that except as is specifically set forth in this Agreement, it is not nor is it intended to be a third party beneficiary of this Agreement or any other agreement or contractual relationship to which Big O is a party. -28- IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement to become effective on the date it is executed by the last of Franchisee or Big O. FRANCHISEE: OK TIRES, INC., a Utah corporation By: /s/ Terry H. Larsen -------------------------------------------------------------- Terry H. Larsen, President/Treasurer Date: ------------------------------------------------------------ Home Address: 3378 South 5530 West ---------------------------------------------------- Salt Lake City, Utah 84120 ----------------------------------------------------------------- Home Phone Number: (801) 967-1251 ----------------------------------------------- Office Address: 2830 West 3500 South ------------------------------------------------ West Valley City, Utah 84119 --------------------------------------------------------------- Office Phone Number: (801) 967-7166 ------------------------------------------- Title: --------------------------------------------------------- Attest: -------------------------------------------------------- Title: --------------------------------------------------------- (Affix Corporate Seal) FRANCHISEE: OK TIRES, INC., a Utah corporation By: /s/ Michael H. Hartson, ------------------------------------------------------------ Michael H. Hartson, Vice President/Secretary Date: ---------------------------------------------------------- Home Address: 7863 S. Harvel Dr. -------------------------------------------------- Sandy, Utah 84070 --------------------------------------------------------------- Home Phone Number: (801) 566-8488 --------------------------------------------- Office Address: 2830 West 3500 South ------------------------------------------------ West Valley City, Utah 84119 --------------------------------------------------------------- Office Phone Number: (801) 967-7166 ------------------------------------------- Title: ------------------------------------------------------ Attest: ------------------------------------------------------ Title: ------------------------------------------------------ (Affix Corporate Seal) -29- BIG O TIRES, INC. By: /s/ Ronald H. Lautzenheiser -------------------------------------------------------------- Ronald H. Lautzenheiser, Vice President, Business Development Date: 10/10/94 ------------------------------------------------------------ Attest: /s/ Philip J. Teigen ---------------------------------------------------------- Philip J. Teigen, General Counsel & Secretary Date: 10/10/94 ------------------------------------------------------------ (4/1/94) -30- SCHEDULE 1 ---------- TO -- FRANCHISE AGREEMENT ------------------- BETWEEN BIG O TIRES, INC. AND ----------------------------- OK TIRES, INC., a Utah corporation ---------------------------------- 1. The Premises of referred to in Section 2.01 of the Franchise Agreement shall be: 2830 West 3500 South ---------------------------------------------------------------------------- West Valley City, Utah 84119 ---------------------------------------------------------------------------- 2. Legal Description of Premises: Beginning at a point 660 West and 53 feet North from the Southeast corner of the Southwest quarter of Section 28, Township 1 South, Range 1 West, Salt Lake Meridian, thence West 90 Feet; thence North 241.80 feet; thence East 90 feet; thence South 241.80 feet to the point of BEGINNING. 3. Names(s) and address(es) of holder(s) of record fee title to Premises (the landlord): Name: Akbar Pack ------------------------------------------------------------------ Address: 4141 South 500 West --------------------------------------------------------------- Murray, Utah 84123 --------------------------------------------------------------- Name: ------------------------------------------------------------------ Address: --------------------------------------------------------------- ----------------------------------------------------------------------- Name: ------------------------------------------------------------------ Address: --------------------------------------------------------------- ----------------------------------------------------------------------- 4. Description of Trade Area: The trade area shall consist of Salt Lake County as defined by the State of Utah as of October 7, 1994. Schedule 1 Franchise Agreement Page 1 SCHEDULE 2 ---------- OWNERSHIP VERIFICATION ---------------------- 1. Name(s) and address(es) of person(s) owning interest in Franchisee and percentage of said person(s) interest: Name: Terry H. and Betty P. Larsen 25% ------------------------------------------------------------------ Address: 3378 South 5530 West --------------------------------------------------------------- Salt Lake City, Utah 84120 ----------------------------------------------------------------------- Name: Michael H. and Linda R. Hartson 25% ------------------------------------------------------------------ Address: 7863 S. Harvel Dr. --------------------------------------------------------------- Sandy, Utah 84070 ----------------------------------------------------------------------- Name: Steven P. and Elaine Cloward 25% ------------------------------------------------------------------ Address: 7732 S. Glencoe Ct. --------------------------------------------------------------- Littleton, Colorado 80122 ----------------------------------------------------------------------- Name: Thomas L. Lynda M. Staker 25% ------------------------------------------------------------------ Address: 6196 N. Ponderosa Way --------------------------------------------------------------- Parker, Colorado 80134 ----------------------------------------------------------------------- STATE OF Utah ) --------------- ) COUNTY OF Salt Lake ) -------------- Terry H. Larsen and Michael H. Hartson, being first duly sworn, says that they are respectively, the President and Secretary of OK TIRES, INC., the above- named corporation, and execute this instrument for and in its behalf, by authority of its shareholders and that they have read the foregoing Agreement and all Exhibits attached thereto. /s/ Terry H. Larsen ------------------------------ Terry H. Larsen, President /s/ Michael H. Hartson ------------------------------ Michael H. Hartson, Secretary Subscribed and sworn to before me this _________________ day of ________________________, 19 __. ---------------------------------- Notary Public My Commission Expires: ------------ Schedule 2 Franchise Agreement Page 1 SCHEDULE 3 ---------- GUARANTY OF FRANCHISEE'S AGREEMENT ---------------------------------- In consideration of, and as an inducement to, the execution of the foregoing Franchise Agreement by Big O Tires, Inc. ("Big O"), each of the undersigned hereby guarantees unto Big O that OK TIRES, INC., a Utah corporation ("Franchisee") will perform during the term of the Franchise Agreement each and every covenant, payment, agreement and undertaking on the part of Franchisee contained and set forth in or arising out of such Franchise Agreement. Big O, its successors and assigns, may from time to time, without notice to the undersigned (a) resort to the undersigned for payment of any of the liabilities of the Franchisee to Big O, whether or not Big O or its successors have resorted to any property securing any of the liabilities or proceeded against any of the undersigned or any party primarily or secondarily liable on any of the liabilities, (b) release or compromise any liability of the Franchisee or of any of the undersigned hereunder or any liability of any party or parties primarily or secondarily liable on any of the liabilities, and (c) extend, renew or credit any of the liabilities of the Franchisee to Big O for any period (whether or not longer than the original period); alter, amend or exchange any of the liabilities; or give any other form of indulgence, whether under the Franchise Agreement or not. The undersigned further waives presentment, demand, notice of dishonor, protest, nonpayment and all other notices whatsoever, including without limitation: notice of acceptance hereof; notice of all contracts and commitments; notice of the existence or creation of any liabilities under the foregoing Franchise Agreement and of the amount and terms thereof; and notice of all defaults, disputes or controversies between Franchisee and Big O resulting from such Franchise Agreement or otherwise, and the settlement, compromise or adjustment thereof. The undersigned agrees to pay all expenses paid or incurred by Big O in attempting to enforce the foregoing Franchise Agreement and this Guaranty against Franchisee and against the undersigned and in attempting to collect any amounts due thereunder and hereunder, including reasonable attorneys' fees if such enforcement or collection is by or through an attorney-at-law. Any waiver, extension of time or other indulgence granted from time to time by Big O or its agents, successors or assigns, with respect to the foregoing Franchise Agreement, shall in no way modify or amend this Guaranty, which shall be continuing, absolute, unconditional and irrevocable. If more than one person has executed this Guaranty, the term "the undersigned," as used herein shall refer to each such person, and the liability of each of the undersigned hereunder shall be joint and several and primary as sureties. IN WITNESS WHEREOF, each of the undersigned has executed this Guaranty under seal effective as of the date of the foregoing Franchise Agreement. /s/ Terry H. Larsen ------------------------------------ Signature ------------------------------------ Date TERRY H. LARSEN ------------------------------------ Printed Name Schedule 3 to Franchise Agreement Page 1 3378 South 5530 West ----------------------------- Salt Lake City, Utah 84120 ----------------------------- Home Address (801) 967-1251 ----------------------------- Home Telephone 2830 West 3500 South ----------------------------- West Valley City, Utah 84119 ----------------------------- Business Address (801) 967-7166 ----------------------------- Business Telephone Schedule 3 to Franchise Agreement Page 2 SCHEDULE 3 ---------- GUARANTY OF FRANCHISEE'S AGREEMENT ---------------------------------- In consideration of, and as an inducement to, the execution of the foregoing Franchise Agreement by Big O Tires, Inc. ("Big O"), each of the undersigned hereby guarantees unto Big O that OK TIRES, INC., a Utah corporation ("Franchisee") will perform during the term of the Franchise Agreement each and every covenant, payment, agreement and undertaking on the part of Franchisee contained and set forth in or arising out of such Franchise Agreement. Big O, its successors and assigns, may from time to time, without notice to the undersigned (a) resort to the undersigned for payment of any of the liabilities of the Franchisee to Big O, whether or not Big O or its successors have resorted to any property securing any of the liabilities or proceeded against any of the undersigned or any party primarily or secondarily liable on any of the liabilities, (b) release or compromise any liability of the Franchisee or of any of the undersigned hereunder or any liability of any party or parties primarily or secondarily liable on any of the liabilities, and (c) extend, renew or credit any of the liabilities of the Franchisee to Big O for any period (whether or not longer than the original period); alter, amend or exchange any of the liabilities; or give any other form of indulgence, whether under the Franchise Agreement or not. The undersigned further waives presentment, demand, notice of dishonor, protest, nonpayment and all other notices whatsoever, including without limitation: notice of acceptance hereof; notice of all contracts and commitments; notice of the existence or creation of any liabilities under the foregoing Franchise Agreement and of the amount and terms thereof; and notice of all defaults, disputes or controversies between Franchisee and Big O resulting from such Franchise Agreement or otherwise, and the settlement, compromise or adjustment thereof. The undersigned agrees to pay all expenses paid or incurred by Big O in attempting to enforce the foregoing Franchise Agreement and this Guaranty against Franchisee and against the undersigned and in attempting to collect any amounts due thereunder and hereunder, including reasonable attorneys' fees if such enforcement or collection is by or through an attorney-at-law. Any waiver, extension of time or other indulgence granted from time to time by Big O or its agents, successors or assigns, with respect to the foregoing Franchise Agreement, shall in no way modify or amend this Guaranty, which shall be continuing, absolute, unconditional and irrevocable. If more than one person has executed this Guaranty, the term "the undersigned," as used herein shall refer to each such person, and the liability of each of the undersigned hereunder shall be joint and several and primary as sureties. IN WITNESS WHEREOF, each of the undersigned has executed this Guaranty under seal effective as of the date of the foregoing Franchise Agreement. /s/ Betty P. Larsen ________________________________________ Signature ________________________________________ Date BETTY P. LARSEN ________________________________________ Printed Name Schedule 3 to Franchise Agreement Page 3 3378 South 5530 West ----------------------------- Salt Lake City, Utah 84120 ----------------------------- Home Address (801) 967-1251 ----------------------------- Home Telephone 2830 West 3500 South ----------------------------- West Valley City, Utah 84119 ----------------------------- Business Address (801) 967-7166 ----------------------------- Business Telephone Schedule 3 to Franchise Agreement Page 4 SCHEDULE 3 ---------- GUARANTY OF FRANCHISEE'S AGREEMENT ---------------------------------- In consideration of, and as an inducement to, the execution of the foregoing Franchise Agreement by Big O Tires, Inc. ("Big O"), each of the undersigned hereby guarantees unto Big O that OK TIRES, INC., a Utah corporation ("Franchisee") will perform during the term of the Franchise Agreement each and every covenant, payment, agreement and undertaking on the part of Franchisee contained and set forth in or arising out of such Franchise Agreement. Big O, its successors and assigns, may from time to time, without notice to the undersigned (a) resort to the undersigned for payment of any of the liabilities of the Franchisee to Big O, whether or not Big O or its successors have resorted to any property securing any of the liabilities or proceeded against any of the undersigned or any party primarily or secondarily liable on any of the liabilities, (b) release or compromise any liability of the Franchisee or of any of the undersigned hereunder or any liability of any party or parties primarily or secondarily liable on any of the liabilities, and (c) extend, renew or credit any of the liabilities of the Franchisee to Big O for any period (whether or not longer than the original period); alter, amend or exchange any of the liabilities; or give any other form of indulgence, whether under the Franchise Agreement or not. The undersigned further waives presentment, demand, notice of dishonor, protest, nonpayment and all other notices whatsoever, including without limitation: notice of acceptance hereof; notice of all contracts and commitments; notice of the existence or creation of any liabilities under the foregoing Franchise Agreement and of the amount and terms thereof; and notice of all defaults, disputes or controversies between Franchisee and Big O resulting from such Franchise Agreement or otherwise, and the settlement, compromise or adjustment thereof. The undersigned agrees to pay all expenses paid or incurred by Big O in attempting to enforce the foregoing Franchise Agreement and this Guaranty against Franchisee and against the undersigned and in attempting to collect any amounts due thereunder and hereunder, including reasonable attorneys' fees if such enforcement or collection is by or through an attorney-at-law. Any waiver, extension of time or other indulgence granted from time to time by Big O or its agents, successors or assigns, with respect to the foregoing Franchise Agreement, shall in no way modify or amend this Guaranty, which shall be continuing, absolute, unconditional and irrevocable. If more than one person has executed this Guaranty, the term "the undersigned," as used herein shall refer to each such person, and the liability of each of the undersigned hereunder shall be joint and several and primary as sureties. IN WITNESS WHEREOF, each of the undersigned has executed this Guaranty under seal effective as of the date of the foregoing Franchise Agreement. /s/ Michael H. Hartson ---------------------------------- Signature ---------------------------------- Date MICHAEL H. HARTSON ---------------------------------- Printed Name Schedule 3 to Franchise Agreement Page 5 7863 S. Harvel Dr. ----------------------------- Sandy, Utah 84070 ----------------------------- Home Address (801) 566-8488 ----------------------------- Home Telephone 2830 West 3500 South ----------------------------- West Valley City, Utah 84119 ----------------------------- Business Address (801) 967-7166 ----------------------------- Business Telephone Schedule 3 to Franchise Agreement Page 6 SCHEDULE 3 ---------- GUARANTY OF FRANCHISEE'S AGREEMENT ---------------------------------- In consideration of, and as an inducement to, the execution of the foregoing Franchise Agreement by Big O Tires, Inc. ("Big O"), each of the undersigned hereby guarantees unto Big O that OK TIRES, INC., a Utah corporation ("Franchisee") will perform during the term of the Franchise Agreement each and every covenant, payment, agreement and undertaking on the part of Franchisee contained and set forth in or arising out of such Franchise Agreement. Big O, its successors and assigns, may from time to time, without notice to the undersigned (a) resort to the undersigned for payment of any of the liabilities of the Franchisee to Big O, whether or not Big O or its successors have resorted to any property securing any of the liabilities or proceeded against any of the undersigned or any party primarily or secondarily liable on any of the liabilities, (b) release or compromise any liability of the Franchisee or of any of the undersigned hereunder or any liability of any party or parties primarily or secondarily liable on any of the liabilities, and (c) extend, renew or credit any of the liabilities of the Franchisee to Big O for any period (whether or not longer than the original period); alter, amend or exchange any of the liabilities; or give any other form of indulgence, whether under the Franchise Agreement or not. The undersigned further waives presentment, demand, notice of dishonor, protest, nonpayment and all other notices whatsoever, including without limitation: notice of acceptance hereof; notice of all contracts and commitments; notice of the existence or creation of any liabilities under the foregoing Franchise Agreement and of the amount and terms thereof; and notice of all defaults, disputes or controversies between Franchisee and Big O resulting from such Franchise Agreement or otherwise, and the settlement, compromise or adjustment thereof. The undersigned agrees to pay all expenses paid or incurred by Big O in attempting to enforce the foregoing Franchise Agreement and this Guaranty against Franchisee and against the undersigned and in attempting to collect any amounts due thereunder and hereunder, including reasonable attorneys' fees if such enforcement or collection is by or through an attorney-at-law. Any waiver, extension of time or other indulgence granted from time to time by Big O or its agents, successors or assigns, with respect to the foregoing Franchise Agreement, shall in no way modify or amend this Guaranty, which shall be continuing, absolute, unconditional and irrevocable. If more than one person has executed this Guaranty, the term "the undersigned," as used herein shall refer to each such person, and the liability of each of the undersigned hereunder shall be joint and several and primary as sureties. IN WITNESS WHEREOF, each of the undersigned has executed this Guaranty under seal effective as of the date of the foregoing Franchise Agreement. /s/ Linda R. Hartson -------------------------------- Signature -------------------------------- Date LINDA R. HARTSON -------------------------------- Printed Name Schedule 3 to Franchise Agreement Page 7 7863 S. Harvel Dr. --------------------------------------- Sandy, Utah 84070 --------------------------------------- Home Address (801) 566-8488 --------------------------------------- Home Telephone 2830 West 3500 South --------------------------------------- West Valley City, Utah 84119 --------------------------------------- Business Address (801) 967-7166 --------------------------------------- Business Telephone Schedule 3 to Franchise Agreement Page 8 SCHEDULE 3 ---------- GUARANTY OF FRANCHISEE'S AGREEMENT ---------------------------------- In consideration of, and as an inducement to, the execution of the foregoing Franchise Agreement by Big O Tires, Inc. ("Big O"), each of the undersigned hereby guarantees unto Big O that OK TIRES, INC., a Utah corporation ("Franchisee") will perform during the term of the Franchise Agreement each and every covenant, payment, agreement and undertaking on the part of Franchisee contained and set forth in or arising out of such Franchise Agreement. Big O, its successors and assigns, may from time to time, without notice to the undersigned (a) resort to the undersigned for payment of any of the liabilities of the Franchisee to Big O, whether or not Big O or its successors have resorted to any property securing any of the liabilities or proceeded against any of the undersigned or any party primarily or secondarily liable on any of the liabilities, (b) release or compromise any liability of the Franchisee or of any of the undersigned hereunder or any liability of any party or parties primarily or secondarily liable on any of the liabilities, and (c) extend, renew or credit any of the liabilities of the Franchisee to Big O for any period (whether or not longer than the original period); alter, amend or exchange any of the liabilities; or give any other form of indulgence, whether under the Franchise Agreement or not. The undersigned further waives presentment, demand, notice of dishonor, protest, nonpayment and all other notices whatsoever, including without limitation: notice of acceptance hereof; notice of all contracts and commitments; notice of the existence or creation of any liabilities under the foregoing Franchise Agreement and of the amount and terms thereof; and notice of all defaults, disputes or controversies between Franchisee and Big O resulting from such Franchise Agreement or otherwise, and the settlement, compromise or adjustment thereof. The undersigned agrees to pay all expenses paid or incurred by Big O in attempting to enforce the foregoing Franchise Agreement and this Guaranty against Franchisee and against the undersigned and in attempting to collect any amounts due thereunder and hereunder, including reasonable attorneys' fees if such enforcement or collection is by or through an attorney-at-law. Any waiver, extension of time or other indulgence granted from time to time by Big O or its agents, successors or assigns, with respect to the foregoing Franchise Agreement, shall in no way modify or amend this Guaranty, which shall be continuing, absolute, unconditional and irrevocable. If more than one person has executed this Guaranty, the term "the undersigned," as used herein shall refer to each such person, and the liability of each of the undersigned hereunder shall be joint and several and primary as sureties. IN WITNESS WHEREOF, each of the undersigned has executed this Guaranty under seal effective as of the date of the foregoing Franchise Agreement. /s/ Steven P. Cloward ---------------------------------------- Signature 6/7/94 ---------------------------------------- Date STEVEN P. CLOWARD ---------------------------------------- Printed Name Schedule 3 to Franchise Agreement Page 9 7732 S. Glencoe Ct. --------------------------------------- Littleton, Colorado 80122 --------------------------------------- Home Address (303) 770-8145 --------------------------------------- Home Telephone 2830 West 3500 South --------------------------------------- West Valley City, Utah 84119 --------------------------------------- Business Address (801) 967-7166 --------------------------------------- Business Telephone Schedule 3 to Franchise Agreement Page 10 SCHEDULE 3 ---------- GUARANTY OF FRANCHISEE'S AGREEMENT ---------------------------------- In consideration of, and as an inducement to, the execution of the foregoing Franchise Agreement by Big O Tires, Inc. ("Big O"), each of the undersigned hereby guarantees unto Big O that OK TIRES, INC., a Utah corporation ("Franchisee") will perform during the term of the Franchise Agreement each and every covenant, payment, agreement and undertaking on the part of Franchisee contained and set forth in or arising out of such Franchise Agreement. Big O, its successors and assigns, may from time to time, without notice to the undersigned (a) resort to the undersigned for payment of any of the liabilities of the Franchisee to Big O, whether or not Big O or its successors have resorted to any property securing any of the liabilities or proceeded against any of the undersigned or any party primarily or secondarily liable on any of the liabilities, (b) release or compromise any liability of the Franchisee or of any of the undersigned hereunder or any liability of any party or parties primarily or secondarily liable on any of the liabilities, and (c) extend, renew or credit any of the liabilities of the Franchisee to Big O for any period (whether or not longer than the original period); alter, amend or exchange any of the liabilities; or give any other form of indulgence, whether under the Franchise Agreement or not. The undersigned further waives presentment, demand, notice of dishonor, protest, nonpayment and all other notices whatsoever, including without limitation: notice of acceptance hereof; notice of all contracts and commitments; notice of the existence or creation of any liabilities under the foregoing Franchise Agreement and of the amount and terms thereof; and notice of all defaults, disputes or controversies between Franchisee and Big O resulting from such Franchise Agreement or otherwise, and the settlement, compromise or adjustment thereof. The undersigned agrees to pay all expenses paid or incurred by Big O in attempting to enforce the foregoing Franchise Agreement and this Guaranty against Franchisee and against the undersigned and in attempting to collect any amounts due thereunder and hereunder, including reasonable attorneys' fees if such enforcement or collection is by or through an attorney-at-law. Any waiver, extension of time or other indulgence granted from time to time by Big O or its agents, successors or assigns, with respect to the foregoing Franchise Agreement, shall in no way modify or amend this Guaranty, which shall be continuing, absolute, unconditional and irrevocable. If more than one person has executed this Guaranty, the term "the undersigned," as used herein shall refer to each such person, and the liability of each of the undersigned hereunder shall be joint and several and primary as sureties. IN WITNESS WHEREOF, each of the undersigned has executed this Guaranty under seal effective as of the date of the foregoing Franchise Agreement. /s/ Elaine Cloward ------------------------------------ Signature 10/7/94 ------------------------------------ Date ELAINE CLOWARD ------------------------------------ Printed Name Schedule 3 to Franchise Agreement Page 11 7732 S. Glencoe Ct. ------------------- Littleton, Colorado 80122 -------------------------- Home Address (303) 770-8145 -------------- Home Telephone 2830 West 3500 South -------------------- West Valley City, Utah 84119 ----------------------------- Business Address (801) 967-7166 -------------- Business Telephone Schedule 3 to Franchise Agreement Page 12 SCHEDULE 3 ---------- GUARANTY OF FRANCHISEE'S AGREEMENT ---------------------------------- In consideration of, and as an inducement to, the execution of the foregoing Franchise Agreement by Big O Tires, Inc. ("Big O"), each of the undersigned hereby guarantees unto Big O that OK TIRES, INC., a Utah corporation ("Franchisee") will perform during the term of the Franchise Agreement each and every covenant, payment, agreement and undertaking on the part of Franchisee contained and set forth in or arising out of such Franchise Agreement. Big O, its successors and assigns, may from time to time, without notice to the undersigned (a) resort to the undersigned for payment of any of the liabilities of the Franchisee to Big O, whether or not Big O or its successors have resorted to any property securing any of the liabilities or proceeded against any of the undersigned or any party primarily or secondarily liable on any of the liabilities, (b) release or compromise any liability of the Franchisee or of any of the undersigned hereunder or any liability of any party or parties primarily or secondarily liable on any of the liabilities, and (c) extend, renew or credit any of the liabilities of the Franchisee to Big O for any period (whether or not longer than the original period); alter, amend or exchange any of the liabilities; or give any other form of indulgence, whether under the Franchise Agreement or not. The undersigned further waives presentment, demand, notice of dishonor, protest, nonpayment and all other notices whatsoever, including without limitation: notice of acceptance hereof; notice of all contracts and commitments; notice of the existence or creation of any liabilities under the foregoing Franchise Agreement and of the amount and terms thereof; and notice of all defaults, disputes or controversies between Franchisee and Big O resulting from such Franchise Agreement or otherwise, and the settlement, compromise or adjustment thereof. The undersigned agrees to pay all expenses paid or incurred by Big O in attempting to enforce the foregoing Franchise Agreement and this Guaranty against Franchisee and against the undersigned and in attempting to collect any amounts due thereunder and hereunder, including reasonable attorneys' fees if such enforcement or collection is by or through an attorney-at-law. Any waiver, extension of time or other indulgence granted from time to time by Big O or its agents, successors or assigns, with respect to the foregoing Franchise Agreement, shall in no way modify or amend this Guaranty, which shall be continuing, absolute, unconditional and irrevocable. If more than one person has executed this Guaranty, the term "the undersigned," as used herein shall refer to each such person, and the liability of each of the undersigned hereunder shall be joint and several and primary as sureties. IN WITNESS WHEREOF, each of the undersigned has executed this Guaranty under seal effective as of the date of the foregoing Franchise Agreement. /s/ Thomas L. Staker, Jr. --------------------------------------- Signature 10/7/94 --------------------------------------- Date THOMAS L. STAKER, JR. --------------------------------------- Printed Name Schedule 3 to Franchise Agreement Page 13 6196 N. Ponderosa Way --------------------- Parker, Colorado 80134 ----------------------- Home Address (303) 841-3212 -------------- Home Telephone 2830 West 3500 South -------------------- West Valley City, Utah 84119 ----------------------------- Business Address (801) 967-7166 -------------- Business Telephone Schedule 3 to Franchise Agreement Page 14 SCHEDULE 3 ---------- GUARANTY OF FRANCHISEE'S AGREEMENT ---------------------------------- In consideration of, and as an inducement to, the execution of the foregoing Franchise Agreement by Big O Tires, Inc. ("Big O"), each of the undersigned hereby guarantees unto Big O that OK TIRES, INC., a Utah corporation ("Franchisee") will perform during the term of the Franchise Agreement each and every covenant, payment, agreement and undertaking on the part of Franchisee contained and set forth in or arising out of such Franchise Agreement. Big O, its successors and assigns, may from time to time, without notice to the undersigned (a) resort to the undersigned for payment of any of the liabilities of the Franchisee to Big O, whether or not Big O or its successors have resorted to any property securing any of the liabilities or proceeded against any of the undersigned or any party primarily or secondarily liable on any of the liabilities, (b) release or compromise any liability of the Franchisee or of any of the undersigned hereunder or any liability of any party or parties primarily or secondarily liable on any of the liabilities, and (c) extend, renew or credit any of the liabilities of the Franchisee to Big O for any period (whether or not longer than the original period); alter, amend or exchange any of the liabilities; or give any other form of indulgence, whether under the Franchise Agreement or not. The undersigned further waives presentment, demand, notice of dishonor, protest, nonpayment and all other notices whatsoever, including without limitation: notice of acceptance hereof; notice of all contracts and commitments; notice of the existence or creation of any liabilities under the foregoing Franchise Agreement and of the amount and terms thereof; and notice of all defaults, disputes or controversies between Franchisee and Big O resulting from such Franchise Agreement or otherwise, and the settlement, compromise or adjustment thereof. The undersigned agrees to pay all expenses paid or incurred by Big O in attempting to enforce the foregoing Franchise Agreement and this Guaranty against Franchisee and against the undersigned and in attempting to collect any amounts due thereunder and hereunder, including reasonable attorneys' fees if such enforcement or collection is by or through an attorney-at-law. Any waiver, extension of time or other indulgence granted from time to time by Big O or its agents, successors or assigns, with respect to the foregoing Franchise Agreement, shall in no way modify or amend this Guaranty, which shall be continuing, absolute, unconditional and irrevocable. If more than one person has executed this Guaranty, the term "the undersigned," as used herein shall refer to each such person, and the liability of each of the undersigned hereunder shall be joint and several and primary as sureties. IN WITNESS WHEREOF, each of the undersigned has executed this Guaranty under seal effective as of the date of the foregoing Franchise Agreement. /s/ Lynda M. Staker --------------------------------------- Signature 10-7-94 --------------------------------------- Date LYNDA M. STAKER --------------------------------------- Printed Name Schedule 3 to Franchise Agreement Page 15 6196 N. Ponderosa Way --------------------- Parker, Colorado 80134 ----------------------- Home Address (303) 841-3212 -------------- Home Telephone 2830 West 3500 South -------------------- West Valley City, Utah 84119 ----------------------------- Business Address (801) 967-7166 -------------- Business Telephone Schedule 3 to Franchise Agreement Page 16 SCHEDULE 5 FARM CLASS RIDER ---------------- Franchisee represents that it reasonably anticipates that at least twenty- five percent (25%) of its Store's Gross Sales on an annual basis will be derived directly from the sale of Farm Class Tires. In reliance on Franchisee's representations, and its consideration for Franchisee to become or remain a Big O franchisee, Big O has offered Franchisee the opportunity to execute this Farm Class Rider. 1. So long as at least twenty-five percent (25%) of Franchisee's Gross Sales on an annual basis are derived directly from Farm Class Tires, Big O agrees to exercise its best efforts to provide Franchisee with access to a supply of Farm Class Tires. Franchisee acknowledges that production and distribution problems occasionally cause supplies to be limited, and that so long as Big O acts in good faith and in a commercially reasonably and lawful manner to obtain access to Farm Class Tires that it shall be deemed in compliance with its obligations hereunder. 2. If Big O fails to comply with its obligations pursuant to Section 1 of this Farm Class Rider and cannot or will not provide Franchisee with access to Farm Class Tires for sixty (60) days following written notice of such failure from Franchisee, as its sole and exclusive remedy, Franchisee shall be relieved of its obligation to pay Big O monthly royalty fees on that portion of its Gross Sales derived directly from the sale of Farm Class Tires. Any services provided by Franchisee in connection with the sale of Farm Class Tires, and any other Products and Services sold by Franchisee in a transaction involving the sale of Farm Class Tires shall be included in the portion of Franchisee's Gross Sales upon which monthly royalty fees are payable. Big O may require Franchisee to provide it with documentation to support any exclusion claimed by Franchisee. 3. Big O may terminate Franchisee's rights under this Farm Class Rider without in any way affecting Franchisee's obligations under the Franchise Agreement if the Store's sales of Farm Class Tires during any twelve (12) month period have been less than twenty-five percent (25%) of its Gross Sales. IN WITNESS WHEREOF, the parties have set forth their signatures below. FRANCHISEE: By: ------------------------------------- Date: ----------------------------------- Home Address: --------------------------- ---------------------------------------- Home Phone Number: ---------------------- Office Address: ------------------------- ---------------------------------------- Office Phone Number: --------------------- Title: ---------------------------------- Attest: --------------------------------- Title: ---------------------------------- (Affix Corporate Seal) Schedule 5 to Franchise Agreement Page 1 FRANCHISEE: By: ------------------------------------- Date: ----------------------------------- Home Address: --------------------------- ---------------------------------------- Home Phone Number: ---------------------- Office Address: ------------------------- ---------------------------------------- Office Phone Number: -------------------- ---------------------------------------- Title: ---------------------------------- Attest: --------------------------------- Title: ---------------------------------- (Affix Corporate Seal) Schedule 5 to Franchise Agreement Page 2 SCHEDULE 6 RIDER FOR EXISTING FRANCHISEES EXECUTING THE -------------------------------------------- FRANCHISE AGREEMENT PRIOR TO THE EXPIRATION ------------------------------------------- OF THEIR PRE-EXISTING FRANCHISE AGREEMENT ----------------------------------------- Franchisee is the owner of a Store which is the subject of a franchise agreement which has not yet expired. Franchisee's execution of the attached Franchise Agreement is subject to the following: 1. Unless otherwise provided herein, the attached Franchise Agreement shall expire on the tenth anniversary of the Effective Date of Franchisee's attached Franchise Agreement, to wit: _______________________________________. 2. Prior to the expiration of the Franchisee's present franchise agreement, to wit _____________, the monthly continuing services fees (or their functional equivalent) provided in the present franchise agreement shall continue to be the only such fees due to Big O. In all other respects the terms of the attached Franchise Agreement shall be applicable as of the Effective Date of this Franchise Agreement. In Witness Whereof, the parties have set forth their signature below. BIG O TIRES, INC. By: ------------------------------------- Date: ----------------------------------- Title: ---------------------------------- Attest: --------------------------------- Title: ---------------------------------- (Affix Corporate Seal) FRANCHISEE: By: ------------------------------------- Date: ----------------------------------- Home Address: --------------------------- ---------------------------------------- Home Phone Number: ---------------------- Office Address: ------------------------- Office Phone Number: -------------------- Schedule 6 to Franchise Agreement Page 1 Title: ---------------------------------- Attest: --------------------------------- Title: ---------------------------------- (Affix Corporate Seal) FRANCHISEE: By: ------------------------------------- Date: ----------------------------------- Home Address: --------------------------- ---------------------------------------- Home Phone Number: ---------------------- Office Address: ------------------------- ---------------------------------------- Office Phone Number: -------------------- Title: ---------------------------------- Attest: --------------------------------- Title: ---------------------------------- (Affix Corporate Seal) Schedule 6 to Franchise Agreement Page 2 SCHEDULE 7 TRADEMARKS ---------- Big O is the sole and exclusive owner of the following trademarks and service marks:
Trademark, Service Mark, Trade Where Registration Name or Logotype Registered Number Registration Date Sonic Principal 805,575 03/15/66 Sonic Commercial Principal 805,578 03/15/66 Super Sonic Principal 805,574 03/15/66 Ultra Sonic Principal 805,577 03/15/66 Winter Sonic Principal 805,581 03/15/66 Sun Valley Principal 871,318 06/17/69 Sonic & Design Principal 890,380 05/05/70 Sonic Principal 891,936 06/02/70 Maxima Principal 926,329 12/28/71 Golden Sonic Power Principal 962,580 07/03/73 Super S Principal 981,992 04/09/74 Saxon Principal 982,828 04/30/74 Big O Principal 993,415 09/24/74 Big O Principal 994,466 10/01/74 Sonic Vagabond Principal 996,459 10/22/74 Big Ride Principal 1,009,148 04/22/75 Big Steel Principal 1,012,897 06/10/75 Sonic Sahara Principal 1,013,509 06/17/75 Big Trak Principal 1,016,826 07/29/75 Big Haul Principal 1,018,800 08/26/75 Protectors of Safety Saxon and Principal 1,024,138 11/04/75 Design Design of Human Likeness "Sebastian Treadmore" Principal 1,044,068 07/20/76 Big Foot 70 Principal 1,102,059 09/12/78 Big Foot 60 Principal 1,102,058 09/12/78 Big Sur Principal 1,219,035 12/07/82 Extra Care and Design Principal 1,417,730 11/18/86 Legacy Principal 1,393,967 05/20/86 Aspen Principal 1,508,041 10/11/88 Exotic Principal 1,511,711 11/08/88
Schedule 7 to Franchise Agreement Page 1
Trademark, Service Mark, Trade Where Registration Name or Logotype Registered Number Registration Date Sonic Principal 805,575 03/15/66 Big O Tires and Design Principal 1,559,725 10/10/89 Sun Valley III Principal 1,588,734 03/27/90 Big O Tires and Design Principal 1,611,160 08/28/90 Optima Principal 74/198,278 Pending Procomp & Design Principal 74/298,320 Pending Vail Principal 74/310,463 Pending Arapahoe Principal 74/271,501 Pending Alpine Principal 74/310,467 Pending Aztec Principal 74/310,465 Pending Hydro-Trac Principal 74/357,214 Pending A Reputation You Can Ride On Principal 74/360,838 Pending Big Foot Principal 74/389,931 Pending STATE REGISTRATIONS Big O Texas 40,967 11/01/82 Big O Texas 40,704 09/02/82 Boss Colorado T28335 04/23/85 Legacy Colorado T29645 10/28/85 Extra Care Colorado T30670 04/22/86
Schedule 7 to Franchise Agreement Page 2 SCHEDULE 8 CONVERTOR RIDER --------------- AMENDMENT TO BIG O FRANCHISE AGREEMENT (CONVERSION) Big O TIRES, INC. ("Big O") and ___________________________________________ ("Franchisee") entered into a certain Big O Franchise Agreement ("Agreement") on _____________, 19_____ and desire to supplement and amend certain terms and conditions of such Agreement in consideration of Franchisee's conversion of a currently operating tire store to a Big O Store. The parties therefore agree as follows: 1. The following paragraph is hereby added to 6.03: Notwithstanding any provision herein to the contrary, Franchisee's obligation to comply with Big O's standards and specifications as are set forth in the Manual shall be phased in for a period of six months from the Commencement Date of the Agreement in accordance with Schedule A, attached hereto and by this reference incorporated herein. Franchisee will be permitted to use Big O's trademarks, service marks, logos and other identifying symbols or names, in its signage, advertising and otherwise, in conjunction with any other previous signage or identifying symbols or names for sixty (60) days from the Commencement Date of this Agreement, in a manner which shall be approved by Big O, which approval shall not be unreasonably withheld. Upon expiration of such sixty day period, Franchisee must use Big O's signage exclusively and remove all other previous signage. 2. Section 6.05 is deleted in its entirety and the following is inserted in its place: 6.05 Commencement of Business. The Big O Store shall be considered to have commenced operation as of the Commencement Date of this Agreement. All modifications required to bring the premises into compliance with the standards and specifications of Big O must be completed within six (6) months of the Commencement Date. 3. Section 7.01(a) is hereby deleted in its entirety and the following is inserted in its place: (a) Franchisee acknowledges that Big O is under no obligation to provide site selection assistance and Big O does not guarantee the success or profitability of the Franchisee's current site in any manner whatsoever. If Franchisee leases the Premises upon which the Store is to be operated, Franchisee agrees to use its best efforts to negotiate with its landlord for execution of a conditional lease assignment in a form which is the same as or similar to the one found on Schedule 4. 4. The following language shall be added to Section 7.01(b): Big O will provide Franchisee with sample blueprints for modification of the interior and exterior of Franchisee's premises, if applicable, but makes no representations or guarantees regarding the suitability of such blueprints for required modification of Franchisee's premises. 5. Franchisee agrees to convert all other tire stores owned or controlled by it into Big O Stores, in the manner prescribed in Schedule B, attached hereto and by this reference incorporated herein. Schedule 8 to Franchise Agreement Page 1 6. The terms and conditions of this Conversion Amendment are in addition to or in explanation of the existing terms and conditions of the Agreement and shall prevail over and supersede any inconsistent terms and conditions thereof. Effective this _____ day of ________________, 199___. BIG O TIRES, INC. FRANCHISEE: ------------------------------------ (Print Name) By: By: -------------------------------- --------------------------------- Title: Title: ----------------------------- ------------------------------ Schedule 8 to Franchise Agreement Page 2 EX-10.81 22 FRAN AGR 93031 EXHIBIT 10.81 Copy Franchise Agreement #93031 BIG O TIRES, INC. FRANCHISE AGREEMENT Copyright 1993 Big O Tires, Inc. BIG O TIRES, INC. FRANCHISE AGREEMENT TABLE OF CONTENTS SUMMARY PAGES......................................... i GLOSSARY.............................................. iii 1. PARTIES AND RECITALS.............................. 1 2. GRANT OF FRANCHISE................................ 1 2.01 Grant of Franchise.......................... 1 2.02 Trade Area.................................. 1 3. FIRST OPTION RIGHTS............................... 1 3.01 First Option Rights......................... 1 3.02 Notification by Big O....................... 2 3.03 Multiple First Option Rights................ 2 3.04 Notification of Qualification............... 2 3.05 Exercise of Option by Franchisee............ 2 3.06 Transfer of First Option Rights............. 2 3.07 Limitation on First Option Rights........... 2 3.08 Expiration of First Option Rights........... 2 4. TERM.............................................. 2 4.01 Term........................................ 2 5. RENEWAL: EXTENSION OF FRANCHISE RIGHTS............ 3 5.01 Grant of Successor Franchise Rights......... 3 5.02 Conditions to Grant of Successor Franchise.. 3 5.03 Notification of Non-Renewal................. 3 6. FRANCHISEE'S DEVELOPMENT OBLIGATIONS.............. 3 6.01 Financing Approval.......................... 3 6.02 Site Selection.............................. 3 6.03 Equipment and Signage....................... 4 6.04 Conditions to Opening....................... 4 6.05 Commencement of Business.................... 4 7. PRE-OPENING AND ONGOING ASSISTANCE................ 4 7.01 Pre-Opening Assistance...................... 4 7.02 On-Going Assistance......................... 5 8. FEES.............................................. 6 8.01 Initial Franchise Fee....................... 6 8.02 Service Fee................................. 6 8.03 Late Fees................................... 6 8.04 Taxes....................................... 6 8.05 Allocation of Payments...................... 6
9. LICENSED MARKS........................................ 6 9.01 Licensed Marks.................................. 6 9.02 Limitation on Use............................... 7 9.03 Infringement.................................... 7 9.04 Franchisee's Business Name...................... 7 9.05 Change of Licensed Marks........................ 7 10. STANDARDS OF OPERATION................................ 7 10.01 Standards of Operations........................ 7 11. STORE MANAGEMENT...................................... 8 11.01 Store Management............................... 8 11.02 Completion of Training by Operator or Manager.. 8 11.03 Operation of Store by Big O.................... 8 12. QUALITY CONTROL....................................... 9 12.01 Inspections.................................... 9 13. MANUAL: NEW PROCESSES................................ 9 13.01 Manual......................................... 9 13.02 Confidentiality of Information................. 9 13.03 Revisions to Manual............................ 10 13.04 Improvements to System......................... 10 14. PRODUCTS AND SERVICES................................. 10 14.01 Products and Services.......................... 10 14.02 Approval of Products and Services.............. 10 14.03 Inventory...................................... 11 14.04 Warranties and Guaranties...................... 11 14.05 Open Account Financing......................... 11 15. ADVERTISING, MARKETING AND PROMOTIONAL PLANS.......... 11 15.01 Initial Advertising............................ 11 15.02 National Advertising Fund...................... 11 15.03 Local Fund..................................... 12 15.04 Approval of Advertising........................ 13 16. STATEMENTS AND RECORDS................................ 13 16.01 Invoices....................................... 13 16.02 Audit.......................................... 13 16.03 Monthly Reports................................ 13 16.04 Financial Statements........................... 13 16.05 Management System.............................. 14 17. COVENANTS............................................. 14 17.01 Noncompetition During Term..................... 14 17.02 Confidentiality................................ 14 17.03 No Interference with Business.................. 14 17.04 Post Termination Covenant Not to Compete....... 14 17.05 Survivability of Covenants..................... 14 17.06 Modification of Covenants...................... 15
18. TRANSFER AND ASSIGNMENT............................ 15 18.01 Assignment by Big O......................... 15 18.02 Right of First Refusal...................... 15 18.03 Transfer Legend............................. 15 18.04 Pre-Conditions to Franchisee's Assignment... 15 18.05 Death of Franchisee......................... 17 18.06 No Waiver................................... 17 18.07 Excepted Transfers.......................... 18 19. DEFAULT AND TERMINATION............................ 18 19.01 Termination by Big O........................ 18 19.02 Governing State Law......................... 19 19.03 Termination by Franchisee................... 19 19.04 Force Majeure............................... 19 20. POST TERMINATION OBLIGATIONS....................... 20 20.01 Post-Termination Obligations................ 20 20.02 Right to Repurchase......................... 21 20.03 Right of First Refusal...................... 21 20.04 De-Identification of Assets Upon Sale....... 21 21. INSURANCE.......................................... 21 21.01 Insurance Coverage.......................... 21 21.02 Proof of Insurance.......................... 22 21.03 Survival of Indemnification................. 23 22. TAXES, PERMITS AND INDEBTEDNESS.................... 23 22.01 Payment of Taxes............................ 23 22.02 Compliance with Laws........................ 23 22.03 Payment of Debts............................ 23 23. INDEMNIFICATION AND INDEPENDENT CONTRACTOR STATUS.. 23 23.01 Indemnification............................. 23 23.02 Independent Contractor...................... 23 24. WRITTEN APPROVALS, WAIVERS AND AMENDMENT........... 24 24.01 Written Approval............................ 24 24.02 Waiver...................................... 24 24.03 Modification................................ 24 25. DEALER PLANNING BOARD.............................. 24 25.01 Dealer Planning Board....................... 24 25.02 Special Interest Issues..................... 24 25.03 Disapproval of Management Proposal.......... 24 25.04 Compliance with Modification................ 25 26. RIGHT OF OFFSET.................................... 25 26.01 Right of Offset............................. 25 27. ENFORCEMENT........................................ 25 27.01 Declaratory and Injunctive Relief........... 25 27.02 Costs of Enforcement........................ 25
28. NOTICES............................................ 25 28.01 Notices..................................... 25 29. GOVERNING LAW...................................... 25 29.01 Governing Law............................... 25 29.02 Jurisdiction................................ 25 30. SEVERABILITY AND CONSTRUCTION...................... 26 30.01 Severability................................ 26 30.02 Counterparts................................ 26 30.03 Construction................................ 26 31. ACKNOWLEDGEMENTS................................... 26 Schedule 1 - Premises and Trade Area Schedule 2 - Corporate Verification Schedule 3 - Guaranty Schedule 4 - Lease Rider and Modification Schedule 5 - Farm Class Rider Schedule 6 - Renewal Rider Schedule 7 - Trademarks Schedule 8 - Convertor Rider
BIG O TIRES, INC. FRANCHISE AGREEMENT SUMMARY PAGES These pages summarize the attached Franchise Agreement, the details of which shall control in the event of any conflict. 1. FRANCHISEE: CAPS TIRE LIMITED LIABILITY COMPANY 2. INITIAL FRANCHISE FEE: Amount Due: -with Application: $ 6,000.00 ---------- -upon signing Agreement: $12,000.00 ---------- Total: $18,000.00 ---------- 3. SERVICE FEE: Two percent (2%) of Gross Sales 4. LOCAL ADVERTISING Minimum of four percent (4%) of Gross Sales CONTRIBUTION: 5. NATIONAL ADVERTISING See sections 15 and 25 CONTRIBUTION: 6. INITIAL ADVERTISING REQUIREMENT: 7. STORE LOCATION: 8151 E. Arapahoe Road Street and Number Englewood, Colorado 80112 City, State and Zip Code (303) 267-0055 Phone Number 8. Franchisee's Operator: 9. Franchisee's Manager: Robert Collaer 10. Franchisee's Agent For Service of Process: Name: John Adams Address: 2925 Geddes Pl. Littleton, Colorado 80122 11. Big O's Agent for Service of Process: Name: CT Corporation Address: 1600 Broadway Denver, CO 80290 i 12. Effective Date: 13. Commencement Date: November 26, 1993 14. Expiration Date: November 26, 2003 15. Franchisee's Advisor: 16. Send Notices to Big O to: Name: Philip J. Teigen (Legal Department) Address: Big O Tires, Inc. 11755 E. Peakview Avenue Englewood, Colorado 80111 17. Send Notices to Franchisee to: Name: Big O Tire Store Address: 8151 E. Arapahoe Road Englewood, Colorado 80112 18. Business not subject to Section 17 (a) Name: Address: 19. Farm Class Franchise: Yes No X 20. First Option Holder: Name: N/A Address: ii GLOSSARY (in alphabetical order) Advertising - The advertising, promotional programs, public relations programs and marketing programs approved or administered by Big O utilizing the resources of the National Advertising Fund or local franchisee cooperatives or franchisee associations. Agreement - This contract, the Summary Pages and all Riders and Schedules hereto, as interpreted through the Manual. Big O - Big O Tires, Inc. Big O Store or Store - A retail tire store operated pursuant to the Big O System. Big O System or System - The plan and system developed by Big O relating to the complete operation of Stores which are authorized to sell Products and Services and offer other authorized tire and automotive services at retail, which include some or all of the following: site selection as required, site approval, Store layout and design, product selection and display, purchasing and inventory control methods, accounting methods, merchandising, advertising, sales and promotional ideas, franchisee training, personnel training, and other matters relating to the efficient operation and supervision of Stores and the maintenance of uniform standards of retail merchandising. Blue II - See the definition of "Manual". Commencement Date - The date upon which the Store opens for business or, in the event of transfer, or conversion, the date designated by Big O Tires, Inc. Convertor - A person who converts a retail tire store it owns to a Big O Store pursuant to this Agreement. Dealer Planning Board - The group of franchisee representatives elected from each Local Group which meets periodically with Big O's management to develop Big O's strategic plans and to discuss issues of concern to franchisees. The functions of the Dealer Planning Board are described in Section 25 of this Agreement. Development Agreement - An agreement between Big O and a person to which the person ("Developer") agrees that within a defined territory to open and commence operating an agreed number of Big O Stores pursuant to a development schedule. Developers must execute Franchise Agreements prior to commencing business at any Store developed pursuant to a Development Agreement. Due Date - The fifteenth day of each month: the date by which all service fees and advertising contributions must be postmarked and mailed to Big O. Effective Date - The date upon which the Franchise Agreement has been executed in full by both the Franchisee and Big O. Expiration Date - The date on which the initial term of the Agreement expires. Farm Class Store - A Store with twenty-five percent (25%) or more of its average Gross Sales during any twelve (12) month period arising directly from the sale of Farm Class Tires. Farm Class Tires - Farm tires, off road tires, large double bead truck tires and similar select tires, as may be more specifically defined from time to time by Big O. iii First Option - Franchisee's right to acquire a franchise for a new Store planned for development within a five (5) mile radius of Franchisee's Premises. The First Option and method of exercising it are described in Section 3 of this Agreement. Franchise - The rights granted by the Franchise Agreement. Franchised Business - The business operated pursuant to a license granted by Big O which utilizes the Licensed Marks and the Big O System. Franchisee - The individual(s), corporation or other entity to which the Franchise is granted. Depending on the context of this Agreement, the term Franchisee may include the shareholders or guarantors of a corporate Franchisee. Gross Sales - The aggregate gross amount of all revenues from whatever source derived whether in form of cash, credit, agreements to pay or other consideration including the actual retail value of any goods or services traded, bartered, or otherwise received by Franchisee in exchange for any form of non- monetary consideration, (whether or not payment is received at the time of sale or any such amount is proved uncollectible) from or derived by Franchisee or any other person from business conducted or which originated in, on, from or through the Premises, whether such business is conducted in compliance with or in violation of the terms of the Franchise Agreement. Gross Sales includes sums paid for claims made on business interruption insurance policies, Federal Excise Taxes collected, as well as payments received from employees of Franchisee for products purchased at a discounted price. However, Gross Sales does not include: (i) sales or use taxes collected by Franchisee; (ii) the amount of any refunds or allowances made on Products and Services returned by customers; (iii) returns to shippers, vendors and manufacturers; (iv) proceeds derived from the sale of equipment or supplies used by Franchisee in the operation of the Store and not acquired for resale; (v) sales of Products and Services to other Big O Stores; (vi) tire disposal fees so long as the fees charged do not exceed the highest fee recommended by any applicable governmental agency; and (vii) sums received in settlement of claims for loss or damage to fixtures, equipment or leasehold improvements, other than sums received from business interruption insurance. Information - The contents of the Manual or any other manual, computer software, materials, goods, and information created or used by Big O designated for confidential use within the Big O System, and the information contained therein. Initial Advertising - Advertising conducted within sixty (60) days of the Commencement Date to promote the opening of the Store. Licensed Marks - Trademarks and trade names, service marks and associated logos and symbols owned or sublicensed by Big O, including those enumerated on Schedule 7 and such other marks, logos and names as Big O may designate. Local Fund - The fund, which may be a trust fund, corporation or other entity, derived from contributions by Big O franchisees who are members of a Local Group which shall be maintained by the Local Group for Advertising pursuant to such guidelines as Big O may approve or prescribe. Local Group - A cooperative or association of Big O franchisees formed and operating in their marketing area pursuant to a structure approved or prescribed by Big O for the purpose of promoting Big O Stores and their Products and Services, and providing Management Systems and related services to its members to the extent approved by Big O. Big O will assign a Franchisee to a Local Group and Franchisee must become a member of that Local Group and be bound by any decisions it makes to the extent they are approved by Big O. iv Management Systems - Computer hardware, software, cash registers, bookkeeping and accounting services or systems and other systems designed to provide information for the management of Big O Stores. Manager - An individual other than the Operator who is responsible for the day- to-day operation of a Store. Manager Incentive Contract - An agreement pursuant to which certain Managers may earn purchase credits based upon their performance so that they can acquire Big O franchises from their employer, whether the employer is Big O or a Big O franchisee. Manual - The various written, audio and video instructions and manuals, including amendments thereto relating to the operation of the Franchised Business which are provided to Franchisee by Big O and identified as such, including but not limited to A Blueprint For Success, also known as "Blue II". National Advertising Fund - The fund derived from contributions by Big O franchisees which shall be exclusively maintained and administered by Big O for national Advertising in cooperation with the Dealer Planning Board. National Fund - Big O Tires, Inc. National Advertising Fund. Operator - The individual approved by Big O who shall be responsible for the operation of the Franchised Business. The Operator may be the Franchisee if the Franchisee is an individual. Option - Big O's right to purchase the interest being offered by the Franchisee or any Shareholder by matching the bona fide monetary purchase price and payment schedule terms of the proposed Transfer, less any brokerage commission (without having to match any other non-monetary terms). Pioneer - A person who owned at least twenty-five percent (25%) equity interest in a Big O franchisee on March 1, 1987, provided such ownership interest appeared on Big O's records as of July 1, 1987. A Pioneer is entitled to acquire Big O franchises for one-third of the applicable initial franchise fee, provided the Pioneer satisfies Big O's other requirements. Premises - The site from which a Franchised Business will be operated at the Store Location described on the Summary Pages, or where applicable, on Schedule 1 to the Franchise Agreement. Products and Services - All tires (including but not limited to Big O's private brand lines of tires), products and services produced, organized or distributed under a license granted by Big O, which are designated by Big O for sale or lease in Stores. Shareholder - Any person possessing a legal or beneficial interest or holding a share of stock of any kind or nature in the Franchisee, including partners in a Franchisee which is a partnership. Survivor - A surviving spouse or heir of estate of any deceased person owning stock or any other interest in the Franchisee. Termination Date - The date upon which the Franchise Agreement is cancelled or ended by Big O or the Franchisee. Trade Area - The area described on Schedule 1 to the Agreement within which, subject to certain conditions, Big O agrees to limit the number of Stores to one (1) for every fifty thousand (50,000) persons residing therein. Big O may, from time to time, redefine Franchisee's Trade Area. v Trade Dress - Any shop or architectural designs, fixtures, improvements, signs, color schemes or other elements of the appearance of the Store which in any manner suggest affiliation of the Store or Premises with Big O, or the System. Transfer - To give away, sell, assign, pledge, lease, sublease, devise, or otherwise transfer, either directly or by operation of law or in any other manner, the Agreement, any of Franchisee's rights or obligations hereunder, or any interest or shares of stock or partnership interest of any kind or nature in Franchisee or the Premises. The merger or consolidation or issuance of additional securities representing an ownership interest in Franchisee shall also be deemed to be a "Transfer" for purposes of this Agreement. vi BIG O TIRES, INC. FRANCHISE AGREEMENT This Franchise Agreement ("Agreement") is made by and between Big O Tires, Inc. ("Big O"), a Nevada corporation, with its principal place of business at 11755 East Peakview Avenue, P.O. Box 3206, Englewood, Colorado 80111, and CAPS TIRE LIMITED LIABILITY COMPANY ("Franchisee"), a(n) Colorado limited liability company with a place of business at 8151 E. Arapahoe Road, Englewood, Colorado 80112. 1. PARTIES AND RECITALS 1.01 Big O was established to provide franchisees with access to Products and Services and a System for marketing and servicing such Products and Services. Since its inception, Big O has added to the Product and Services and System to enhance the competitive posture of its franchisees. Big O has developed and owns certain Licensed Marks which are licensed to franchisees for use in the Big O Stores. In connection therewith, Big O has developed the Big O System relating to the operation of Stores which are authorized to offer and sell Big O tires as part of the Products and Services offered to retail customers. 1.02 Franchisee desires, upon the terms and conditions set forth herein, to obtain a license to operate a Franchised Business and to offer and sell Big O Products and Services. Franchisee acknowledges that it is essential to the preservation of the integrity of the Licensed Marks, and the goodwill of Big O and the Big O System, that each franchisee in the System maintain and adhere to certain standards, procedures and policies described hereinafter and in the Manual. 1.03 Big O is willing, upon the terms and conditions set forth herein, to license Franchisee to operate a Franchised Business which will utilize the Licensed Marks and the Big O System. 2. GRANT OF FRANCHISE 2.01 Grant of Franchise. Subject to all of the terms and conditions herein, including but not limited to, the condition that Franchisee or its Shareholders or some of them, personally guarantee the obligations of Franchisee to Big O under this Agreement as set forth in Schedule 3 to this Agreement, Big O grants to Franchisee the non-exclusive license to use the Licensed Marks and the exclusive right to operate a Franchised Business solely at the Premises set forth in Schedule 1 to this Agreement. If, at the time of execution of this Agreement, the Premises cannot be designated as a specific address because a location has not been selected by Franchisee and approved by Big O, then Franchisee shall promptly take steps to choose and acquire a location for its Big O Store within the following city, county or other geographical area: Englewood, Colorado ("Designated Area"). In such circumstances, Franchisee shall select and submit to Big O for approval a specific location for the Premises, which shall hereinafter be set forth in Schedule 1. 2.02 Trade Area. During the term of this Agreement, Big O agrees not to operate itself or grant to any other person the right to operate any more than one (1) Store for every fifty thousand (50,000) persons residing in the Trade Area described on Schedule 1. Big O may, from time to time, redefine the Trade Area. Absent Franchisee's prior approval, Big O shall not permit the establishment or operation of another Store within a two (2) mile radius of Franchisee's Store. Big O shall offer Products and Services bearing the Licensed Marks at retail only through Big O Stores. 3. FIRST OPTION RIGHTS 3.01 First Option Rights. Subject to the conditions described below, if Big O or any prospective Big O franchisee should propose to open a Store within a five (5) mile radius of Franchisee's Store, Franchisee shall be notified of its First Option to acquire a Franchise for an additional Store within the five (5) mile radius of its Store. Franchisee may only exercise the First Option if: (a) at the time Big O notifies Franchisee of the proposal for the new Store, Franchisee is in full compliance with all the terms of this Agreement and any other agreements it has with Big O; (b) Franchisee meets Big O's then current criteria for new franchisees; and (c) There are not two (2) or more Big O franchises with Stores within a five (5) mile radius of the site of a proposed new Store. 3.02 Notification by Big O. When notifying Franchisee of a proposal to establish a new Store in accordance with Franchisee's First Option, Big O may notify Franchisee of the proposal to establish the new Store within the general vicinity of Franchisee's Store without identifying a specific site or sites. 3.03 Multiple First Option Rights. If two (2) or more Big O franchisees have Stores within a five (5) mile radius of the site of a proposed new Store, the Franchisee and all such franchisees will be invited simultaneously by written notice from Big O to exercise their First Option rights; but if two (2) or more such franchisees apply for the same franchise, it shall be awarded to the qualified franchisee which has a Store that is closest to the site of the proposed new Store or, if two qualified franchisees have Stores that are equidistant from such site, it shall be awarded to the qualified franchisee which owns the franchised Big O Store which was first licensed as a Big O Store by the current or a previous owner. 3.04 Notification of Qualification. If Franchisee qualifies for the First Option pursuant to this Section 3, Big O will provide Franchisee with written notice that it has thirty (30) days within which to submit an application for the franchise in the manner prescribed by Big O in the notice. Franchisee must submit the application within the prescribed time along with the standard franchise deposit then required by Big O. Upon approval of the application by Big O, Franchisee must execute Big O's then current standard Franchise Agreement and pay the remainder of any initial fee due. 3.05 Exercise of Option by Franchisee. If Franchisee is a corporation or partnership, the First Option may be exercised only by the corporation or partnership itself, or by the individual designated as First Option holder on the Summary Pages. 3.06 Transfer of First Option Rights. The First Option is not transferable without Big O's prior written approval, which may be withheld for any reason, in Big O's sole discretion. 3.07 Limitation on First Option Rights. The First Option rights described above are void and unenforceable with respect to a site proposed for development in an area which is at the time of the proposal subject to a Development Agreement between Big O and Developer. 3.08 Expiration of First Option Rights. If a Franchisee has failed to qualify for or otherwise submit an application for a Franchise pursuant to this Section 3 for a proposed franchise to be granted within the area in which Franchisee holds First Option rights, Franchisee's First Option rights for that proposed franchise shall lapse regardless of whether the site actually selected for development by Big O is different from the site which was initially proposed for development. 4. TERM 4.01 Term. This Agreement shall take effect upon the earlier of the Effective Date or of the Commencement Date and, unless previously terminated pursuant to Section 19 hereof, its term shall extend until the earlier of the tenth anniversary of the Commencement Date or such other Expiration Date as is stated on the Summary Pages. 2 5. RENEWAL: EXTENSION OF FRANCHISE RIGHTS 5.01 Grant of Successor Franchise Rights. If Franchisee is not in default under this Agreement and has complied with all of its provisions during the initial term, and has cooperated with Big O, its Local Group and other Big O franchisees in programs and suggestions developed by Big O, upon its expiration Big O will offer a successor franchise agreement with Franchisee, provided the parties mutually agree to the terms of a successor franchise at least one hundred eighty (180) days before the Expiration Date. 5.02 Conditions to Grant of Successor Franchise. Big O will only offer to execute a new franchise agreement in accordance with its then current terms and conditions for granting successor franchises, which may include any or all of the following: (a) Execution of a new and modified franchise agreement which may include, among other matters, a different fee structure, increased fees, a modified Trade Area and different purchase requirements; (b) A requirement that Franchisee refurbish the Premises or relocate the Premises to conform to Big O's then current standards for similar Stores; (c) Payment of Big O's renewal administration fee of One Thousand Five Hundred Dollars ($1,500); and (d) Execution of a general release in favor of Big O and its representatives. 5.03 Notification of Non-Renewal. If Big O is willing to execute a new franchise agreement with Franchisee, at least one (1) year before the Expiration Date, Big O shall notify Franchisee of the Expiration Date and the terms and conditions upon which Big O is willing to execute a new franchise agreement with Franchisee. Franchisee must execute a successor franchise agreement within sixty (60) days of its receipt. The Franchise Agreement will expire on the Expiration Date and the franchise relationship will terminate unless Franchisee and Big O have executed a successor franchise agreement at least one hundred eighty (180) days prior to the Expiration Date, and Franchisee has satisfied all other terms and conditions agreed upon as a prerequisite to renewal. If Big O intends not to offer Franchisee a successor franchise agreement, Big O shall give Franchisee at least one hundred eighty (180) days notice of nonrenewal prior to the Expiration Date. If Big O has not given Franchisee at least one hundred eighty (180) days notice of nonrenewal prior to the Expiration Date, the term of this Agreement will automatically be extended by the amount of time necessary to give Franchisee one hundred eighty (180) days notice of nonrenewal. 6. FRANCHISEE'S DEVELOPMENT OBLIGATIONS 6.01 Financing Approval. Unless otherwise agreed to by Big O, Franchisee shall obtain a letter of commitment for the provision of financing through a lender approved by Big O and with minimum credit terms, also approved by Big O, no later than one hundred twenty (120) days from the Effective Date of this Agreement. 6.02 Site Selection. Franchisee shall obtain the written approval of Big O of the site for the Store within one hundred twenty (120) days from the Effective Date of this Agreement. Franchisee shall propose sites for approval by Big O on forms and in the manner designated from time to time by Big O. A proposed site shall only be submitted to Big O for approval after Franchisee has evaluated the site and determined that it meets Big O's then current criteria for sites which Big O has communicated to Franchisee. Franchisee shall be responsible for obtaining Big O's then current site criteria prior to submitting a site approval application. Big O shall review the site approval application and within thirty 3 (30) days of Big O's receipt thereof, Big O shall approve or reject the proposed site. Unless otherwise agreed to in writing by Big O, final site approval will be conditioned upon Big O's receipt of evidence of Franchisee's ownership, lease or control of the property in such form as Big O, in its sole discretion shall deem to be acceptable, including, without limitation, a deed to the property, an executed contract to purchase the property, a lease with a duration of not less than ten (10) years, or an option to purchase the property. Franchisee acknowledges and agrees that Big O's approval of a site or provision of criteria regarding the site do not constitute a representation or warranty of any kind, express or implied, as to the suitability of the site for a Big O Store or for any other purpose. Big O's approval of the site indicates only that Big O believes that a site falls within the acceptable criteria established by Big O as of that time. In the case of a Convertor, execution of this Agreement shall be deemed approval of the Store Location by Big O, unless additional obligations to convert or upgrade the premises are described in Schedule 8 to this Agreement. 6.03 Equipment and Signage. Franchisee agrees to purchase, lease or otherwise use in the establishment and operation of the Big O Store only those fixtures, equipment and signs that Big O has approved as meeting its specifications and standards for quality, design, appearance, function and performance. Franchisee shall purchase or lease approved brands, types or models of fixtures, equipment, and signs only from suppliers designated or approved by Big O. Franchisee agrees to place or display at the Premises only such signs, logos and display materials that Big O approves from time to time. 6.04 Conditions to Opening. Franchisee agrees, at its sole expense, to do or cause to be done the following prior to opening the Big O Store for business: (i) secure all required financing; (ii) obtain all required permits and licenses; (iii) construct all required improvements and decorate the Store in compliance with approved plans and specifications; (iv) purchase and install all required fixtures,equipment and signs required for the Big O Store; (v) purchase an opening inventory of tires and supplies; (vi) provide Big O with copies of all required insurance policies, or such other evidence of coverage and payment as Big O requests; and (vii) provide Big O with any other documents as may be required by Big O, including but not limited to financing statements. 6.05 Commencement of Business. Franchisee agrees to open the Big O Store for business within fourteen (14) days after Big O notifies Franchisee that the conditions set forth in this Section 6 have been satisfied. Unless otherwise agreed in writing by Big O and Franchisee, Franchisee has sixteen (16) months from the Effective Date of this Agreement within which to have its Big O Store opened and operating ("Development Period"). Big O will extend the Development Period for a reasonable period of time in the event that factors beyond Franchisee's reasonable control prevent Franchisee from meeting this Development Period, so long as Franchisee has made reasonable and continuing effort to comply with such development obligations and Franchisee requests, in writing, an extension of time in which to have its Big O Store open and operating before the Development Period lapses. 7. PRE-OPENING AND ONGOING ASSISTANCE 7.01 Pre-Opening Assistance. Prior to Franchisee's Commencement Date, Big O shall provide Franchisee with such of the following and on the same basis as it will from time to time provide to similarly situated franchisees of Big O: (a) Assistance to Franchisee related to approval of a site for the Store, although Franchisee acknowledges that Big O shall have no obligation to select or acquire a site on behalf of Franchisee. Big O's assistance will consist of the provision of criteria for a satisfactory site, an on-site inspection and determination of whether a proposed site fulfills the requisite criteria, prior to formal approval of a site selected by Franchisee. At Big O's option, Big O may, without fee or expense to Franchisee and review the proposed Store lease. The final decision about whether to 4 acquire a given approved site or whether to execute any particular lease shall be the sole decision of Franchisee. Big O disclaims all liability for the consequences of approving a given site. Big O's participation in site selection in no way is meant to constitute a warranty or guaranty that the Franchised Business will be profitable or otherwise successful. Big O's written approval of the Premises and Store must be obtained by Franchisee before the Store may be opened or relocated. Big O may condition its approval of a Store lease upon Franchisee's execution of a conditional lease assignment in a form which is the same as or similar to the one found on Schedule 4. (b) A prototype floor plan, elevation and equipment layout for the Store, if requested by Franchisee. The plans must be modified by Franchisee's architect or contractor to adapt them to conditions at the Premises and to satisfy all local code requirements. Revisions or modifications to the plans must be approved by Big O. (c) Up to six (6) weeks of training for two persons in the operation of the Franchised Business at Big O's training facility located in Mesa, Arizona, or another location designated by Big O. Unless Big O waives the training requirement, the Manager of the Franchisee's Store, provided he or she has been approved by Big O, and Franchisee's Operator must attend and successfully complete such training. Franchisee shall pay for its own transportation, lodging, and living expenses which are incurred while attending the initial training program, except that Big O will pay lodging and transportation for the first person to attend the training program. In the event that, in Big O's sole discretion, Franchisee's Operator fails to successfully complete the initial training program, Big O may, in its sole discretion, require Franchisee's Operator to attend and successfully complete another training program or terminate this Agreement and, upon receipt from Franchisee of a general release in a form approved by Big O, refund the initial franchise fee paid by Franchisee, less any amounts necessary to reimburse Big O for the costs it incurred in approving Franchisee and in training Franchisee's Operator and Manager. (d) One (1) copy of Big O's Manual, known as "Blue II". (e) Assistance in selecting Franchisee's initial inventory. (f) Instruction in a basic bookkeeping system. 7.02 On-Going Assistance. Big O agrees to make available to Franchisee the following ongoing assistance: (a) To the extent available to Big O, a source of Big O private brand tires; (b) Ongoing research and development into new tires and other lines of Products and Services and ways to enhance the competitive posture of Big O Stores; (c) Additional training for the Operator or other personnel of Franchisee; (d) Suggested prices for the Products and Services sold at the Franchisee's Store, provided that Franchisee will not be required to sell at any particular price if such a requirement would be unlawful; (e) A tire warranty or replacement program for Big O private brand tires and related automotive Products and Services; (f) Field assistance, inspections and advice pertaining to Franchisee's Store; 5 (g) From time to time, local Advertising plans and materials, merchandising materials, sales aids, special promotions and similar Advertising, for which Big O may charge Franchisee a fee; and (h) At the request of Franchisee's Local Group, Big O will supply Franchisee with newspaper mats and radio and television commercial tapes, for which Big O may charge Franchisee or the Local Group a fee. 8. FEES 8.01 Initial Franchise Fee. In consideration of the execution of this Agreement, Franchisee agrees to pay Big O an initial franchise fee in the amount and at the times specified on the Summary Pages. Except as described in Section 7.01(c) above, the initial franchise fee is not refundable. 8.02 Service Fee. After the Commencement Date, Franchisee shall pay to Big O a monthly service fee equal to two percent (2%) of the prior month's Gross Sales. The service fee must be postmarked and mailed to Big O by no later than the Due Date. 8.03 Late Fees. If any fee or any other amount due under this Agreement, including payments for Products and Services, is not received within ten (10) days after such payment is due, Franchisee shall pay Big O interest equal to the lesser of the daily equivalent of eighteen percent (18%) per annum of such overdue amount per year, or the highest rate then permitted by applicable law, for each day such amount is past due. 8.04 Taxes. If any federal, state, or local tax other than an income tax is imposed upon service fees paid by Franchisee to Big O which Big O cannot offset against taxes it is required to pay under the laws of the United States or the state of its domicile, Franchisee agrees to compensate Big O in the manner prescribed by Big O so that the net amount or net rate received by Big O is no less than that which has been established by this Agreement and which was due Big O on the Effective Date of this Agreement. 8.05 Allocation of Payments. Unless other written instructions accompany a specific payment, all payments made by Franchisee pursuant to this Agreement shall be applied in such order as Big O may designate from time to time. Big O shall comply with any written instructions for allocation specified by Franchisee to the extent, in Big O's opinion, it is reasonable to do so. 9. LICENSED MARKS 9.01 Licensed Marks. Franchisee expressly acknowledges that Big O is the sole and exclusive licensor of the Licensed Marks. Franchisee agrees not to represent in any manner that Franchisee has acquired any ownership rights in the Licensed Marks. Franchisee agrees not to use any of the Licensed Marks or any marks, names, or indicia which are or may be confusingly similar in its own corporate or business name except as authorized in this Agreement. Franchisee further acknowledges and agrees that any and all goodwill associated with the Big O System and identified by the Licensed Marks shall inure directly and exclusively to the benefit of Big O and that, upon the expiration or termination of this Agreement for any reason, no monetary amount shall be assigned as attributable to any goodwill associated with Franchisee's use of Licensed Marks. 9.02 Limitations on Use. Franchisee understands and agrees that any use of the Licensed Marks other than as expressly authorized by this Agreement, without Big O's prior written consent, is an infringement of Big O's rights therein and that the right to use the Licensed Marks granted herein does not extend beyond the termination or expiration of this Agreement. Franchisee expressly covenants that, during the term of this Agreement and thereafter, Franchisee shall not, directly or indirectly, commit any 6 act of infringement or contest or aid others in contesting the validity of Big O's right to use the Licensed Marks or take any other action in derogation thereof. 9.03 Infringement. Franchisee acknowledges Big O's right to regulate the use of the Licensed Marks and Trade Dress of the Big O System. Franchisee shall promptly notify Big O if it becomes aware of any use or any attempt by any person or legal entity to use the Licensed Marks or Trade Dress of the Big O System, any colorable variation thereof, or any other mark, name, or indicia in which Big O has or claims a proprietary interest. Franchisee shall assist Big O, upon request and at Big O's expense, in taking such action, if any, as Big O may deem appropriate to halt such activities, but shall take no action nor incur any expenses on Big O's behalf without Big O's prior written approval. 9.04 Franchisee's Business Name. Franchisee further agrees and covenants to operate and advertise only under the name or names from time to time designated by Big O for use by similar Big O System franchisees; to refrain from using the Licensed Marks to perform any activity or to incur any obligation or indebtedness in such a manner as may, in a way, subject to Big O to liability therefor; to observe all laws with respect to the registration of trade names and assumed or fictitious names; to include in any application for the above a statement that Franchisee's use of the Licensed Marks is limited by the terms of this Agreement, and to provide Big O with a copy of any such application and other registration document(s); and to observe such requirements with respect to trademark and service mark registrations, copyright notices, and other notices as Big O may, from time to time, require. 9.05 Change of Licensed Marks. Subject to the requirements of Section 25 of this Agreement, Big O reserves the right, in its sole discretion, to designate one or more new, modified, or replacement Licensed Marks or trade names for use by franchisees and to require the use by Franchisee of any such new, modified, or replacement Licensed Marks or trade names in addition to or in lieu of any previously designated Licensed Marks. Any expenses or costs associated with the use by Franchisee of any such new, modified, or replacement Licensed Marks shall be the sole responsibility of Franchisee. 10. STANDARDS OF OPERATION 10.01 Standards of Operations. Big O shall establish and Franchisee shall maintain high standards of quality, appearance and operation for the Franchised Business. For the purpose of enhancing the public image and reputation of the businesses operating under the System and for the purpose of increasing the demand for Products and Services provided by Franchisee and Big O, the parties agree as follows: (a) Franchisee shall not open the Store for business until Big O has provided Franchisee with written authorization to do so; (b) Franchisee shall comply in good faith with all published Big O System rules, regulations, policies, and standards, including, without limitation, those contained in the Manual. Franchisee shall operate and maintain the Franchised Business solely in the manner and pursuant to the standards prescribed herein, in the Manual and in other materials provided by Big O to Franchisee, and shall make such modifications thereto as Big O may require; (c) Franchisee shall at all times operate the Store diligently and in a manner which is consistent with sound business practices so as to maximize the revenues therefrom; (d) Franchisee shall at all times maintain working capital and a net worth which is sufficient, in Big O's opinion, to enable Franchisee to fulfill properly all of Franchisee's responsibilities under this Agreement; 7 (e) Franchisee shall at all times maintain its Store in the image of and according to the standards of Big O as prescribed in the Manual. Moreover, Franchisee agrees to cooperate with Big O at its expense, to the extent building and site limitations permit, in the implementation of new programs, including those which may require the addition of new equipment or fixtures for the Store. In its sole discretion, Big O may waive some or all of any of its franchisees' obligations to comply with such programs. (f) Prior to opening, Franchisee shall provide Big O with written certificates or documentary evidence from an insurance company or companies that Franchisee has obtained the insurance coverage prescribed by Section 21; (g) If Franchisee maintains a customer list, such lists or parts thereof shall be disclosed to no one other than Franchisee's employees or Big O without Big O's prior written consent; and (h) Franchisee shall participate in and be bound by the decisions of any Local Group established and operated pursuant to standards and within the guidelines prescribed or approved by Big O. Franchisee shall not be subject to any agreement to fix prices, or allocate customers or territories which would violate any applicable laws. Nor will Franchisee be subject to any capital investment requirements or other standards which are inconsistent with this Agreement or which have not been approved or prescribed by Big O. 11. STORE MANAGEMENT 11.01 Store Management. Franchisee's Store shall only be operated by the Operator or a Manager employed by the Franchisee who has previously been approved by Big O. All initial and subsequent Operators or Managers must be approved by Big O. Big O's approval will be conditioned upon the Operator's or Manager's successful completion of any training required by Big O. Big O may waive some or all of its initial training requirements for Operators or Managers who have already received such training as a result of their affiliation with another Store or Big O franchisee. If Franchisee or Franchisee's Operator has not already successfully completed such training, he shall be required to successfully complete the training described in Section 7.01 (c) above. 11.02 Completion of Training by Operator or Manager. Franchisee's Operator or Manager and such of its managerial personnel or Shareholders as are designated by Big O, shall complete, to Big O's reasonable satisfaction, any and all training programs Big O may reasonably require or provide at such time as Big O may reasonably prescribe. All expenses incurred by persons receiving such training, including, without limitation, costs of travel, room and board, as well as wages of the person(s) receiving such training shall be borne by Franchisee except that the transportation and lodging costs for the first person receiving such training shall be paid by Big O. 11.03 Operation of Store by Big O. Under the circumstances described below, upon Franchisee's request, Big O has the option, but not the duty, to replace or substitute for Franchisee's Operator, Manager, or both, its own employees or agents, to operate the Franchisee's Store for the benefit of Franchisee with complete discretion over all matters relating to its operation. Franchisee shall pay Big O's then current Store management fee as well as the out-of-pocket expenses Big O incurs for travel, food and lodging in the course of providing such services. Big O may operate Franchisee's Store if: (a) Franchisee's Operator or Manager has failed to satisfactorily complete any training required by this Section 11; or (b) Franchisee's Operator or Manager becomes physically or mentally incapable of operating the Franchised Business; or 8 (c) Franchisee's Operator or Manager dies and a new Operator or Manager has not completed initial training. 12. QUALITY CONTROL 12.01 Inspections. Franchisee hereby grants to Big O and its authorized agents the right to enter the Premises during regular business hours: (a) To conduct inspections and, upon Big O's request, Franchisee agrees to render such assistance as may reasonably be requested and to take such steps as may be necessary immediately to correct any deficiencies in the operation of its Franchised Business pursuant to this Agreement which are detected during such an inspection; and (b) To remove from the Premises, certain samples of any Products and Services, supplies or goods, in amounts reasonably necessary for testing or examination by Big O or an independent laboratory, to determine whether such samples meet Big O's then current standards and specifications. Big O will grant Franchisee a credit equivalent to the cost of any approved Products and Services or supplies damaged or removed by it. 13. MANUAL; NEW PROCESSES 13.01 Manual. To protect the reputation and goodwill of the businesses operating under the System and to maintain high standards of operation under the Licensed Marks, Franchisee shall conduct the Franchised Business strictly in accordance with the Manual, which Franchisee acknowledges belongs solely to Big O and shall be on loan from Big O during the term of this Agreement. Franchisee agrees to pay Big O up to Five Thousand Dollars ($5,000) if the Manual is not returned to Big O within five (5) days of the Expiration Date or Termination Date of this Agreement, or the date upon which controlling interest in the Franchisee, the Franchised Business or its assets is transferred. However, Big O will waive the payment if Franchisee notifies Big O that it has lost or mislaid all or part of the Manual at any time prior to six (6) months before the date upon which the Franchise is transferred, terminates, or expires. 13.02 Confidentiality of Information. Franchisee shall at all times use its best efforts to keep Big O's Information confidential and shall limit access to the Information to employees and independent contractors of Franchisee on a need-to-know basis. Franchisee acknowledges that the unauthorized use or disclosure of Big O's Information will cause irreparable injury to Big O and that damages are not adequate remedy. Franchisee accordingly covenants that it shall not at any time, without Big O's prior written consent, disclose, use, permit the use thereof (except as may be required by applicable law or authorized by this Agreement), copy, duplicate, record, transfer, transmit, or otherwise reproduce such Information, in any form or by any means, in whole or in part, or otherwise make the same available to any unauthorized person or source. Any and all Information, knowledge, and know-how not generally known about the System and Big O's Products and Services, standards, procedures, techniques, and such other Information or material as Big O may designate as confidential shall be deemed confidential for purposes of this Agreement, except Information which Franchisee can demonstrate lawfully came to its attention prior to disclosure by Big O, or which legally is or has become a part of the public domain by publication or communication by others. 13.03 Revisions to Manual. Franchisee understands and acknowledges that subject to the requirements of Section 25, Big O may, from time to time, revise the contents of the Manual to implement new or different requirements for the operation of the Franchised Business, and Franchisee expressly agrees to comply with all such changed requirements which are by their terms mandatory, provided, that such requirements apply in a reasonably nondiscriminatory manner to comparable Big O franchisees. The implementation of such requirements may require the expenditure of reasonable sums of money by 9 Franchisee. Big O will not alter the basic rights and obligations of the parties arising under this Agreement through changes to the Manual. 13.04 Improvements to System. If Franchisee develops any concept, process, service, or improvement in the operation or promotion of the Store, Big O may itself use or disclose it to other Big O franchisees without any obligation to compensate Franchisee therefor. If the concept, process, service, or improvement is adopted for use by the majority of Big O Stores, such concept, process, service, or improvement shall become the property of Big O and Big O may itself use or disclose it to other Big O franchisees without any obligation to compensate Franchisee therefor. 14. PRODUCTS AND SERVICES 14.01 Products and Services. Franchisee acknowledges that its principal interest in acquiring a Big O Franchise is to sell Big O private brand tires and related merchandise and benefit from Big O's Products and Services selection, purchasing programs including programs for the purchase of major brand tires, and marketing expertise. The consuming public expects Big O Stores to offer the full line of Big O Products and Services and advertised warranty services. Accordingly, Franchisee shall at all times have in stock on the Premises a complete representative line of Big O private brand tires, shock absorbers, related merchandise, and other Products and Services in such quantities as Big O may prescribe from time to time. 14.02 Approval of Products and Services. Prior to commencing business at the Premises, Franchisee shall stock the Store with Products and Services and supplies of such variety and in such amounts as Big O may select. Franchisee may not sell any product or service which has not been selected, manufactured, or approved by Big O. Big O is not obliged to approve any product, service, or merchandise selected by the Franchisee. Big O will exercise its right of approval of suppliers selected by the Franchisee which are not at the time approved by Big O for use by the Franchisee in accordance with the following procedure: (a) The Franchisee must submit a written request to Big O for approval of the supplier; (b) The Franchisee must demonstrate to Big O the existence of a need for the product; (c) The supplier must demonstrate to Big O's reasonable satisfaction, that it is able to supply a commodity to the Franchisee meeting Big O's specifications for such commodity and that it is able to do so on a timely basis; (d) The supplier must demonstrate to Big O's reasonable satisfaction that the supplier is of good standing in the business community with respect to its financial soundness and reliability of its product and service; (e) The supplier must agree to indemnify and hold Big O and the Franchisee harmless from and against any claim or liability by reason of the supplier's products, including without limitation, defects in materials and workmanship and supplier must provide to Big O certificates or other evidences of insurance coverage with coverage limits sufficient to cover the risks and an endorsement reflecting that Big O and Franchisee are named as additional insureds under the supplier's insurance policies; and (f) Big O must be reasonably satisfied that the commodity is priced competitively. Big O's current practice is to notify the Franchisee of its approval or disapproval in writing as soon as practicable. 10 14.03 Inventory. Franchisee shall at all times maintain an inventory of Products and Services in such amounts and of such variety as Big O may reasonably require, and shall offer all services which Big O may require. 14.04 Warranties and Guaranties. Franchisee agrees to issue and honor warranties and guarantees written on certain Products and Services sold to consumers in accordance with the terms and procedures prescribed in the Manual. Any such warranty or guaranty will be offered through all Big O Tire Stores on a nondiscriminatory basis. Only warranties or guarantees sponsored or approved by Big O may be offered or honored by Franchisee (other than those required by law). Franchisee and Big O shall only honor warranties and guaranties on Products and Services which have been sold to and returned by consumers in accordance with the terms and procedures prescribed in the Manual. Franchisee acknowledges that it will honor any and all warranties and guarantees sponsored or approved by Big O, regardless of where or by whom they were issued. Franchisee shall make no charge to a customer for honoring such a warranty or guaranty unless the charge is permitted by the express terms of the warranty or guaranty or the then current Manual. Big O agrees not to change or revoke any warranty or guaranty without giving Franchisee at least thirty (30) days prior written notice. Warranties or guarantees issued prior to any such revocation or modification shall be honored according to their terms as interpreted in the Manual. 14.05 Open Account Financing. In its sole discretion, Big O may provide Franchisee with open account financing for some or all of the Products and Services it sells Franchisee. Whether or not such credit is offered, Franchisee will be required to execute a security agreement and comply with all other requirements of Big O to secure Franchisee's obligations to Big O under the Franchise Agreement and perfect its security interest therein. If such credit is offered, Franchisee will be required to execute a credit agreement and security agreement and comply with all other requirements of Big O to secure such payments and perfect its security interest therein. Franchisee's failure to comply with any credit terms set forth above shall constitute an event of default of this Agreement. 15. ADVERTISING, MARKETING AND PROMOTIONAL PLANS 15.01 Initial Advertising. Recognizing the value of standardized Advertising programs to the furtherance of the goodwill and public image of the Big O System, the parties agree that within sixty (60) days of the Commencement Date, Franchisee is required to spend on Initial Advertising the amount specified on the Summary Pages. The exact amount to be spent on Initial Advertising shall be determined by the Franchisee's Local Group and will depend, in part, on Big O's then current presence in the market place, reputation and name recognition. The amount and manner of the Initial Advertising must be approved in advance by Big O. If no Local Group exists for the region where Franchisee's Store is located, then the amount of the Initial Advertising shall be agreed upon by Big O and Franchisee. 15.02 National Advertising Fund. Big O has established a National Advertising Fund which Big O, in its sole discretion, may decide to terminate at any time. If Big O does terminate the National Advertising Fund, Big O, in its sole discretion, may re-establish it at any time. Big O shall notify Franchisee as to the manner in which it shall function and the amount of contribution required of Franchisee. (a) Not later than the Due Date, Big O or its designee must have received from Franchisee such amount as Big O shall designate, but not more than one percent (1%) of its previous month's Gross Sales, as a contribution to the National Advertising Fund which shall be maintained or approved by Big O for Big O National Advertising. Big O shall limit any increase in Franchisee's contribution to the National Advertising Fund from any amount then currently being charged to one-tenth of one percent (.001%) in any twelve (12) consecutive month period and an additional one-tenth of one percent (.001%) for each twelve (12) consecutive months thereafter until the one percent (1%) limitation is reached. Such incremental increases shall not be cumulative so that if Big O fails to adopt an additional incremental increase after any twelve (12) consecutive month period, the next one-tenth of one percent (.001%) incremental increase will not accrue until actually 11 adopted by Big O and shall constitute the maximum for the next consecutive twelve (12) months; provided, however, in the event Big O shall determine, in its sole judgment and discretion, that a special advertising circumstance or opportunity is available to Big O and/or its franchisees, Big O may propose to the Dealer Planning Board a greater increase during any consecutive twelve (12) month period (up to one percent (1%) limit), and if a majority of the members of the Dealer Planning Board agree to such increase, it shall be implemented by Big O, not withstanding Big O's limitation as to the phasing in of any increases. (b) Big O shall, following consultation with the Dealer Planning Board, direct all National Advertising which is provided through the National Advertising Fund with sole discretion over the concepts, materials, and media used therein. All National Advertising Fund contributions paid by Franchisee and other similarly situated Big O System franchisees to Big O shall be part of the National Advertising Fund. (c) Franchisee understands and acknowledges that the National Advertising Fund is intended to maximize general public recognition and acceptance of the Licensed Marks for the benefit of the System as a whole and that Big O undertakes no obligation in administering the National Advertising Fund to insure that any particular franchisee benefits directly or pro rata from the national Advertising. Franchisee agrees that the National Advertising Fund may otherwise be used to meet any and all costs incident to such Advertising; provided that no part thereof shall be used by Big O to defray its general operating expenses other than (i) those reasonably allocable to such Advertising, or (ii) other activities reasonably related to the administration or direction of the National Advertising Fund and its related programs. No refund of contributions to the National Fund shall be due Franchisee upon termination or nonrenewal of this Agreement. (d) Any part of the National Advertising Fund contributions paid to Big O, but not spent by Big O during Big O's fiscal year, which Big O may change in its sole discretion, shall remain in the National Advertising Fund. Any taxes imposed on the National Advertising Fund shall be paid from the National Advertising Fund. (e) The Dealer Planning Board shall have the right to review all expenditures of the National Advertising Fund on a regular basis. 15.03 Local Fund. Franchisee shall also contribute by the Due Date a minimum of four percent (4%) of its Store's Gross Sales for the previous month either to Big O or, if a Local Fund has been established in Franchisee's marketing area, to the Local Fund formed for the purpose of local advertising and operated pursuant to such structure and guidelines as Big O may prescribe or approve. Franchisee agrees to be bound by the decisions of either Big O or its Local Group, if one has been established in Franchisee's marketing area, pertaining to Local Advertising, provided such decisions have been approved by Big O and do not violate any applicable laws. From time to time, the Local Group may agree to increase the amount Franchisee is required to spend for Advertising, but subject to the terms of certain documents already effective on this Agreement's Effective Date, not by more than one percent (1%) of Franchisee's Gross Sales on an annual basis. 15.04 Approval of Advertising. Franchisee or the Local Group shall submit (through the mail, return receipt requested) to Big O for its prior written approval (except with respect to prices to be charged), samples of all marketing materials and advertising to be used by Franchisee that have not been prepared or previously approved in all respects by Big O or its designated agents. Franchisee shall submit tear sheets, receipts, and other evidence of such Advertising in the manner prescribed by Big O. Franchisee will not be required to submit to Big O copies of any proposed Advertising which has been adopted for use by the Local Group and which was previously approved by Big O for use by the Local Group. 12 16. STATEMENTS AND RECORDS 16.01 Invoices. Every sale of Products and Services from the Franchisee's Store shall be accurately recorded on a consecutively numbered invoice or in such other format as Big O may approve. All invoices, whether voided or used, shall be accounted for by Franchisee. 16.02 Audit. Throughout the term of this Agreement and for two (2) years thereafter, Franchisee shall maintain for not less than three (3) years original, full, and complete records, accounts, books, data, licenses, and contracts which shall accurately reflect all particulars relating to the Franchised Business and such other statistical and other information or records as Big O may require. Big O or its designated agent shall have the right to examine and audit such records, accounts, books, and data during regular business hours or at reasonable times. If any such examination or audit discloses that Franchisee has understated its Store's Gross Sales by more than two percent (2%), Franchisee shall be obliged to reimburse Big O for the cost and expense of such examination or audit. If Franchisee has understated any amount due Big O or any Local Group or Local Fund, it shall tender payment of the amount due not later than ten (10) days following receipt of the auditor's report, plus interest calculated at a rate which is the lower of eighteen percent (18%) per annum or the highest rate permitted by law. If Franchisee has overpaid Big O or such Local Group or Local Fund, such amount will be credited to Franchisee against monthly service fees or advertising contributions due to Big O, the Local Group or the Local Fund beginning with the month following receipt of the auditor's report and continuing until the credit is exhausted. 16.03 Monthly Reports. No later than the Due Date, Franchisee shall mail to Big O all payments of service fees and advertising contributions and monthly reports due Big O on forms prescribed by Big O, stating the fees or contributions due to Big O which were incurred during the preceding month as specified from time to time by Big O, the Gross Sales at the Premises for the prior month, copies of all sales tax receipts or returns and such other information as Big O may require, all signed and certified as true and correct by Franchisee or Franchisee's Operator. 16.04 Financial Statements. Franchisee shall deliver to Big O, no later than sixty (60) days from the end of each of Franchisee's fiscal quarters, an unaudited profit and loss statement covering the Franchised Business for such quarter and a balance sheet of the Franchised Business as of the end of such quarter, all of which shall be certified by Franchisee as true and correct. All such statements shall be prepared in a format which has been prescribed or approved by Big O. In addition, Franchisee, as well as any guarantor(s) of this Agreement, shall, within thirty (30) days after request from Big O, deliver to Big O a financial statement, certified as correct and current, in a form which is satisfactory to Big O and which fairly represents the total assets and liabilities of Franchisee and any such guarantor(s). 16.05 Management System. Big O has authorized Local Groups to recommend to Big O that certain Management Systems be obtained and used by all their member franchisees. If Franchisee's Local Group persuades Big O that the acquisition of a Management System by all its member Franchisees is necessary to the efficient functioning of a program which is consistent with the Big O System, Franchisee shall, at its sole expense acquire such Management System and place it in service within such time periods as are recommended by the Local Group and approved by Big O. Once a particular Management System or accounting software has been adopted by a Local Group pursuant to the criteria described herein, Franchisee may utilize a different Management System at Franchisee's Store only with Big O's prior written approval. 17. COVENANTS 17.01 Noncompetition During Term. Except for any businesses already operating and identified on the Summary Pages, during the term of this Agreement, Franchisee and any guarantor(s) hereof 13 covenant, individually, not to engage in or open any business, other than as a Franchisee of the Big O System, which offers or sells tires, wheels, shock absorbers, automotive services, or other products or services which compete with Big O Products and Services. The purpose of this covenant is to encourage Franchisee and any guarantor(s) hereof to use their best efforts to promote the Big O System, its Products and Services, to protect its Information and trade secrets, and to generate a successful business at the Store. 17.02 Confidentiality. During the term of this Agreement and thereafter, Franchisee covenants not to communicate directly or indirectly, divulge to or use for its benefit or the benefit of any other person or legal entity, any trade secrets which are proprietary to Big O or any Information, knowledge, or know-how deemed confidential under Section 13 hereof, except as permitted by Big O. The protection granted hereunder shall be in addition to and not in lieu of all other protections for such trade secrets and confidential Information as may otherwise be afforded in law or in equity. 17.03 No Interference with Business. Franchisee agrees that during the term of this Agreement that it shall not divert or attempt to divert any business of or any actual customers of the Big O System to any competitive business, by direct or indirect inducement or otherwise. 17.04 Post Termination Covenant Not to Compete. If Franchisee terminates this Agreement other than in a manner prescribed by Section 19.03 or if this Agreement is terminated for "good cause" as defined in Section 19.01, Franchisee and its guarantors covenant that they shall not directly or indirectly, for a period of two (2) years after the Termination Date of this Agreement, engage in any business, other than as a Franchisee of the Big O System, which offers or sells tires, wheels, shock absorbers, automotive services, or other products or services which compete with Big O Products and Services within a ten (10) mile radius of the Premises or within a ten (10) mile radius of any other Big O Store which was operational or under construction on the Termination Date. 17.05 Survivability of Covenants. The parties agree that each of the foregoing covenants shall be construed as independent of any other covenant or provision of this Agreement. If all or any portion of a covenant in this Section 17 is held unenforceable by a court or agency having valid jurisdiction in an unappealed final decision to which Big O is a party, Franchisee expressly agrees to be bound by any lesser covenant imposing the maximum duty permitted by law that is subsumed within the terms of the covenant, as if the resulting covenant were separately stated in and made a part of this Section 17. Franchisee further expressly agrees that the existence of any claim it may have against Big O, whether or not arising from this Agreement, shall not constitute a defense to the enforcement by Big O of the covenants in this Section 17. The covenants in this Section 17 shall survive the Termination Date or Expiration Date of this Agreement. 17.06 Modification of Covenants. Franchisee understands and acknowledges that Big O shall have the right, in its sole discretion, to reduce the scope of any covenant set forth in this Section 17 or any portion hereof, without Franchisee's consent, effective immediately upon receipt by Franchisee of written notice thereof; and Franchisee agrees that it shall comply immediately with any covenant as so modified. 18. TRANSFER AND ASSIGNMENT 18.01 Assignment by Big O. This Agreement and all rights and duties hereunder may be freely assigned or transferred by Big O and shall be binding upon and inure to the benefit of Big O's successors and assigns. 18.02 Right of First Refusal. Because Big O or someone known to Big O may be interested in purchasing Franchisee's Franchised Business, the Premises, or an interest in either, if Franchisee decides to make a Transfer, Franchisee agrees to offer in writing to make the Transfer to Big O, and describe the 14 terms under which Franchisee offers to make such a Transfer. If Big O has not offered to purchase what the Franchisee has offered to Transfer to Big O within thirty (30) days after Big O receives the notice from Franchisee, Franchisee may then offer to make the Transfer to third parties on the same or not more favorable terms and conditions as were offered to Big O. If Franchisee does not consummate the Transfer within six months after Franchisee gives notice of the Transfer to Big O, Franchisee shall not make the Transfer without again first offering to make the Transfer to Big O. 18.03 Transfer Legend. Franchisee understands and acknowledges that the rights and duties set forth in this Agreement are personal to Franchisee and that Big O has granted the Franchise in reliance on Franchisee's personal background, business skills, experience, and financial capacity. It is important to Big O that Franchisee be known to Big O and always meet Big O's standards and requirements. Accordingly, neither Franchisee nor any Shareholder shall be permitted or have the power, without the prior written consent of Big O, to make a Transfer. To assure compliance by Franchisee with the transfer restrictions contained in this Section 18, all share or stock certificates of Franchisee shall at all times contain a legend sufficient under applicable law to constitute notice of the restrictions on such stock contained in this Agreement and to allow such restrictions to be enforceable. Such legend shall appear in substantially the following form: "The sale, transfer, pledge, or hypothecation of this stock is restricted pursuant to the terms of Section 18 of a Franchise Agreement dated _____________________ between Big O Tires, Inc, and the issuer of these shares." Any Transfer which does not comply with the terms of this Section 18 shall be null and void. 18.04 Pre-Conditions to Franchisee's Assignment. If Franchisee or any Shareholder desires to make a Transfer, such person or entity must comply with the following terms, conditions, and procedures to effectuate a valid Transfer: (a) If any proposed assignment of any rights under this Agreement, or if any other Transfer which, when aggregated with all previous Transfers, would in the reasonable opinion of Big O, result in the transfer of effective control over the ownership and/or operation of the Premises or Franchisee or the Franchised Business: (i) The transferee must apply for a Big O franchise and must meet all of Big O's then current standards and requirements for becoming a Big O franchisee (which standards and requirements need not be written); and (ii) The transferee shall execute the then current form of Franchise Agreement generally issued by Big O with respect to comparable Big O franchisees. Such agreement shall generally provide for a new term equal to the term of the standard Big O franchise agreement then being offered, and may include, without limitation, different fee structures, modified Trade Areas and/or increased fees; (b) Regardless of the degree of control which would be affected by a proposed Transfer: (i) Franchisee shall first notify Big O in writing of any bona fide proposed Transfer and set forth a complete description of all terms and fees of the proposed Transfer in the manner prescribed by Big O, including the prospective transferee's name, address, financial qualifications, and previous five (5) years business experience; (ii) Big O or its assignee may, within thirty (30) days after receipt of such notice, exercise the Option to purchase the interest being offered by Franchisee or any Shareholder; 15 (iii) If Big O or its assignee fails to exercise the Option to purchase the interest, Big O shall, within thirty (30) days after receipt of the notice of the Option, notify Franchisee in writing of its approval or disapproval of the prospective transferee. Big O's approval will be granted only if the prospective transferee, its Shareholders, partners, and/or Operator: meets Big O's then current standards for new franchisees, which standards need not be in writing; demonstrates to Big O's satisfaction that it or its Operator meets Big O's managerial, business, and technical standards; possesses a good moral character, business reputation, and satisfactory credit rating; and has the aptitude, ability, and financial capacity to operate the Franchised Business (as may be evidenced by prior related business experience or otherwise). Big O reserves the right to disallow a transfer of the Premises (without a transfer of the Franchised Business) to a person which would operate a business from the Premises which sells or offers for sale products or services which are the same as or similar to those offered for sale through the Franchised Business; (iv) If Big O approves the proposed transferee, Franchisee or the Shareholder may transfer the interest to the proposed transferee at a price and under terms and conditions which are not more favorable than the terms offered to Big O. Big O's approval is conditioned upon the proposed transferee or its Operator having completed (to the satisfaction of Big O) the training program then currently required of Big O franchisees or Operators; (v) Prior to the consummation of any such Transfer, Franchisee shall pay all amounts due to Big O and cure all other breaches of this Agreement and any other agreement or loan document it may have with Big O; (vi) Big O will, as a condition of any Transfer involving a change in control of Franchisee, the Store or its Assets, require Franchisee or Transferee to pay a transfer fee (but no initial franchise fee) to reimburse Big O for any expenses which may be incurred in its review, analysis, and preparation of any documentation relating to the Transfer, including legal and accounting fees, and additional assistance as may be requested by the Franchisee related to the Franchisee's resale of the Store. The transfer fee will range between $1,500 and the amount of the then current initial franchise fee, the exact amount within that range to be based on Big O's actual costs incurred. Big O shall be the sole arbiter of whether a change of control will occur as a result of a single Transfer or a group of Transfers; (vii) Big O may require any transferor of any partnership interest, shares of stock, or any other interest of any kind or nature in Franchisee to guarantee the obligations of Transferee under this Agreement or under any new Franchise Agreement entered into between transferee and Big O; (viii) Prior to approving a Transfer of the controlling interest in Franchisee, the Franchised Business, or the Premises, Big O may inspect Franchisee's Store and as a result of such inspection, Big O may prepare a "Punch List" setting forth the necessary repairs, maintenance, or other upgrading of the Store which will become a condition of Big O's approval of the Transfer; and (ix) If the Franchisee acquired its interest in the Franchise as a Pioneer, Converter, or pursuant to a Development Agreement or Manager Incentive Contract, and the Franchisee makes a Transfer of its interest within two (2) years of the Effective Date of this Agreement, the Franchisee must pay Big O as a condition of such Transfer the difference between the initial franchise fee paid by Franchisee and twenty-one thousand dollars 16 ($21,000.00), the standard initial franchisee fee charged by Big O for new franchises when Franchisee executed this Agreement. (x) Franchisee shall comply with all other applicable transfer requirements as designated in the Manual or otherwise in writing. 18.05 Death of Franchisee. Notwithstanding any other provision in this Section 18, if a Survivor desires to acquire or retain the interest of a decedent of a Franchisee or in a Franchisee and continues to operate the Franchised Business pursuant to the System, the Survivor may do so under the terms of this Agreement subject only to: (a) The Survivor's execution and delivery to Big O of a written agreement to be bound: (i) By the terms of this Agreement; and (ii) By the terms of any guaranty of this Agreement; (b) Satisfactory completion of initial training by the Survivor, Survivor's Operator, or Manager and such other managerial personnel as Big O may designate within the time periods prescribed by Big O; and (c) The Survivor's payment of all travel, lodging, food, and similar expenses incurred by it or its Operator or managerial personnel in attending the training prescribed by Section 11.02. If the Survivor does not desire to acquire or retain such interest, then the Survivor shall have a reasonable period of time, but no more than six (6) months, to make a Transfer to a transferee acceptable to Big O subject to compliance with the procedures set forth in this Section 18, provided, the Survivor throughout such period fulfills all duties of Franchisee under this Agreement. 18.06 No Waiver. Big O's consent to a Transfer hereunder shall not constitute a waiver of any claims Big O may have against Franchisee or the transferring party or Big O's right to demand exact compliance with any provision of this Agreement. 18.07 Excepted Transfers. The provisions of Section 18.02 and 18.04(b)(ii) shall not apply to: (a) any Transfer to a spouse, parent, child, or sibling of Franchisee or any Shareholder; (b) a Transfer to Franchisee's Operator or Manager pursuant to the terms of a Manager Incentive Contract which complies in all respects with the standards approved or prescribed by Big O; or (c) a Transfer to a spouse, parent, child, or sibling of Franchisee or any Shareholder which, in the aggregate, amounts to a Transfer of less than a controlling interest in Franchisee, the Franchised Business, or the Premises. 19. DEFAULT AND TERMINATION 19.01 Termination by Big O. Big O may terminate this Agreement for good cause, without prejudice to the enforcement of any legal or equitable right or remedy, immediately upon giving written notice of such termination and the reason or cause for the termination, and, except as hereinafter provided, without providing Franchisee an opportunity to cure the default. Without in any way limiting the generality of the meaning of the term "good cause", the following occurrences shall constitute sufficient basis for Big O to terminate the Agreement: (a) If Franchisee fails to pay any financial obligation pursuant to this Agreement including, but not limited to, payments to Big O or any other supplier for Products and Services, and fails to cure such failure to pay within five (5) days after Big O gives Franchisee a written notice of default; 17 (b) If Franchisee fails to perform or breaches any covenant, obligation, term, condition, warranty, or certification herein and fails to cure such non-compliance within thirty (30) days after Big O gives Franchisee written notice of default; (c) If Franchisee fails to open the Store and commence business within eighteen (18) months of the Effective Date of this Agreement, or if Franchisee fails to commence business on such other Commencement Date as the parties hereto may have agreed; (d) If Franchisee makes, or has made, any materially false statement or report to Big O in connection with this Agreement or the application therefor; (e) If Franchisee operates the Franchised Business in a manner contrary to or inconsistent with the Licensed Marks or as specified by Big O in the Manual, and Franchisee fails to cure such deficiency within thirty (30) days after Big O gives a written notice of default; (f) If Franchisee, a Shareholder, guarantor, or transferee violates any transfer and assignment provision contained in Section 18 of this Agreement; (g) If Franchisee receives from Big O more than three (3) valid notices of default of this Agreement in the same twelve (12) month period, regardless of whether previous defaults have been cured; (h) If Franchisee fails to operate or keep the Franchised Business open for more than five (5) consecutive business days without Big O's express written approval, or if Franchisee ceases to operate all or any part of the Franchised Business conducted under this Agreement or defaults under any loan, lending agreement, mortgage, deed of trust or lease with any party covering the Premises, and such party treats such act or omission as a default, and Franchisee fails to cure such default to the satisfaction of such party within any applicable cure period granted Franchisee by such party; (i) If Franchisee or any person owning an interest in Franchisee is convicted of any felony or crime of moral turpitude regardless of the nature thereof, or any other crime or offense relating to the operation of the Franchised Business, or if Franchisee engages in any conduct which reflects materially and unfavorably upon the operation of the Franchised Business; (j) If Franchisee becomes insolvent or makes a general assignment for the benefit of creditors, or if a petition in bankruptcy is filed by Franchisee, or such a petition is filed against and consented to by Franchisee, or if a bill in equity or other proceeding for the appointment of a receiver of Franchisee or other custodian for Franchisee's business or assets is filed and consented to by Franchisee, or if a receiver or other custodian (permanent or temporary) of Franchisee's assets or property, or any part thereof, other than as described in Section 18.05, is appointed; (k) If Franchisee or any guarantor(s) hereof defaults in any other agreement or loan document with Big O or if Franchisee defaults under the terms of any lease of the Premises or if Franchisee fails to comply with the requirements of any Local Group operating pursuant to standards prescribed or approved by Big O including, but not limited to, any requirement to pay dues or make advertising contributions, and such default is not cured in accordance with the terms of such other agreement, loan document, or lease, or the by-laws of the Local Group; (l) If Franchisee fails, for a period of ten (10) days after notification of non-compliance, to comply with any law or regulation applicable to the operation of the Franchised Business; 18 (m) If Franchisee sells, offers for sale, or gives away at the Premises any products or services which have not been previously approved by Big O in writing, or which have been subsequently disapproved; (n) If Franchisee shall have understated its Gross Sales to Big O by more than two percent (2%) on two (2) or more occasions; or (o) If a court of competent jurisdiction or an arbitration tribunal in a final and unappealed judgment determines that any significant amount of the payments or compensation which Franchisee has agreed to pay Big O pursuant to the terms hereof is unlawful, or that all or a significant part of Franchisee's payment obligations hereunder are void or voidable by Franchisee. 19.02 Governing State Law. If a different notice or cure period or good cause standard is prescribed by applicable law, it shall apply to a termination of this Agreement. 19.03 Termination by Franchisee. Franchisee may only terminate this Agreement if Big O has committed a material breach of any of Big O's obligations under this Agreement and has failed to cure such breach within thirty (30) days after Franchisee has given written notice to Big O of such breach. 19.04 Force Majeure. Notwithstanding anything contained in this Agreement to the contrary, neither party shall be in default hereunder by reason of its delay in performance of, or failure to perform, any of its obligations hereunder, if such delay or failure is caused by: (a) strikes or other labor disturbance; (b) acts of God, or the public enemy, riots or other civil disturbances, fire, or flood; (c) interference by civil or military authorities; (d) compliance with governmental laws, rules, or regulations which were not in effect and could not be reasonably anticipated as of the date of this Agreement; (e) delays in transportation, failure of delivery by suppliers, or inability to secure necessary governmental priorities for materials; or (f) any other fault beyond its control or without its fault or negligence. In any such event, the time required for performance of such obligation shall be the duration of the unavoidable delay. 20. POST TERMINATION OBLIGATIONS 20.01 Post-Termination Obligations. Upon the expiration or termination of this Agreement by any means or for any reason, Franchisee shall immediately: (a) Cease to be a Franchisee of Big O and cease to operate the former Franchised Business under the Big O System. Franchisee shall not thereafter, directly or indirectly, represent to the public that the former Franchised Business is or was operated or in any way connected with the Big O System or hold itself out as a present or former Franchisee of Big O; (b) Pay all sums owing to Big O. Upon termination for any default by Franchisee, such sums shall include actual and consequential damages, costs, and expenses incurred by Big O as a result of the default; 19 (c) Return to Big O the Manual and all trade secrets and confidential materials owned or licensed by Big O and all copies thereof. Franchisee shall retain no copy or record of any of the foregoing other than its copy of this Agreement, any correspondence between the parties, and any other document which Franchisee reasonably needs for compliance with any applicable law; (d) Provide Big O, upon its request, with a complete list of any outstanding obligations Franchisee may have to any third parties including outstanding customer orders. Big O shall have the right, but not the obligation, to fill any such outstanding customer orders generated by Franchisee and in such event, Franchisee shall immediately reimburse Big O for any costs or expenses incurred by Big O in doing so. In addition, Big O shall have the right to cancel any orders placed by Franchisee for which delivery has not been made; (e) Take such action as may be required by Big O to transfer and assign to Big O or its designee all telephone numbers, white and yellow page telephone references and advertisements, and all trade and similar name registrations and business licenses, and to cancel any interest which Franchisee may have in the same. The Franchisor is hereby appointed as the Franchisee's attorney-in-fact for such purpose and such power, being coupled with an interest, shall be irrevocable; (f) Cease to use in Advertising, or in any manner whatsoever, any methods, procedures, or techniques associated with the Big O System in which Big O has a proprietary right, title, or interest; cease to use the Licensed Marks, and any other marks and indicia of operation associated with the Big O System and remove or change all Trade Dress, Products and Services, and other indicia of operation under the Big O System from the Premises, at Franchisee's expense and in a manner satisfactory to Big O. Unless otherwise approved in writing by Big O, Franchisee shall return to Big O all copies of materials bearing the Licensed Marks; and (g) Strictly comply with all other provisions of this Agreement pertaining to post-termination obligations, including, without limitation, those contained in Sections 13 and 17. 20.02 Right to Repurchase. Big O shall have the right, but not the obligation, to purchase: (a) Some or all of the Products and Services and supplies at the Store and the equipment, furnishings, fixtures, or signs at the Premises which bear the Licensed Marks for a mutually agreed upon price within thirty (30) days of the Termination Date or the Expiration Date. (b) If Big O elects to exercise such a right, it may offset the purchase price against any other amounts owed by Franchisee to Big O pursuant to this or any agreement or loan document. Before exercising any such rights, Big O shall have the right to enter upon the Premises during reasonable hours to take an inventory of the Franchised Business. 20.03 Right of First Refusal. Upon receipt by Franchisee of an offer to purchase Franchisee's Products and Services, equipment, supplies, fixtures or signs at the Premises, Franchisee hereby grants Big O a right of first refusal to purchase any of such items by matching the bona fide monetary purchase price and payment schedule terms, less any brokerage commission without having to match any other non-monetary terms of the proposed purchase by Franchisee's buyer(s). Franchisee must give Big O written notice of any such bona fide offer. If within thirty (30) days after receipt of such notice, Big O has neither exercised its right of first refusal nor notified Franchisee of its rejection thereof, Franchisee may sell such items as were covered by the offer at the expiration of the thirty (30) day period. 20.04 De-Identification of Assets Upon Sale. If Big O determines not to exercise its option to repurchase any such items, Franchisee may continue to sell its remaining Products and Services, 20 equipment, supplies, and fixtures, but may not identify itself as a Big O Franchisee. Franchisee shall otherwise abide by the terms of this Section 20. 21. INSURANCE 21.01 Insurance Coverage. Franchisee shall, at its expense and no later than upon the Commencement Date, procure and maintain in full force and effect throughout the term of this Agreement either the approved Big O Dealers National Insurance Program ("Program") then in effect or the types of insurance enumerated in this Agreement, which shall be in such coverages, limits and amounts as may from time to time be required by Big O, and which shall designate Big O, its directors, officers, employees, agents and other Big O designees as additional named insured(s). Unless otherwise agreed to by Big O, Franchisee shall procure and maintain whichever limits and coverages are greater in a comparison of the insurance enumerated in the Manual and the insurance enumerated in the Program. If the Franchisee chooses not to procure insurance pursuant to the Program, Franchisee shall procure the following insurance coverages, limits and amounts: (a) Workers' Compensation insurance with statutory limits for Coverage A as prescribed by the statutes of the state of the Franchised Business; including Coverage B, Employers Liability, with limits not less than or equivalent to $500,000 each person, $500,000 each occurrence, and $500,000 annual aggregate; (b) Comprehensive or Commercial General Liability insurance covering all operations and premises of the Franchised Business, including but not limited to Product Liability, Completed Operations Liability, Personal Injury Protection, Advertisers Liability, Fire Legal Liability, Medical Payments, and Contractual Liability, with limits not less than the equivalent of $2,000,000 per occurrence combined single limit for bodily injury and property damage; (c) Vehicular/Automobile Liability insurance, including Uninsured Motorist and Medical Payments, covering owned, non-owned, hired, leased or other vehicles associated, directly or indirectly, with the Franchised Business, with limits of not less than the equivalent of $1,000,000 per occurrence combined single limit for bodily injury and property damage; (d) "All Risk" Property insurance covering risk of loss to real and personal property; including but not limited to, Accounts Receivable, Valuable Papers, Glass, Signs, Employees' Tools, Loss of Rents, and other building contents - including flood and earthquake coverage if appropriate for the location of the specific Franchised Business-for repair/replacement coverage and valuation of all assets. This coverage will include Business Income/Extra Expense insurance for extra expenses incurred and/or profits lost due to a covered, "All Risk" peril (Business Interruption Valuation Worksheets will be submitted by Franchisee to Big O annually for evaluation and approval). Any coinsurance provisions should apply only to values reported and should have no adverse impact on claim settlement (an Agreed Amount Endorsement should be obtained, if possible); (e) Inland Marine insurance covering all signs, tools and equipment, and cargo being transported by rail, motortruck, or other common carrier conveyances where the Franchised Business has title or responsibility for transported goods, with limits of no less than $10,000 per any one conveyance; (f) Garage Liability and Garagekeepers Legal Liability insurance covering all vehicle storage, garage premises and other operations arising out of the Franchised Business and non-owned use and/or operation of vehicles, with Garage Liability limits of not less than the equivalent of $2,000,000 per occurrence combined single limit for bodily injury and property damage and Garagekeepers Legal Liability of not less than the equivalent of $100,000 per location; 21 (g) Boiler and Machinery insurance covering all real and personal property; including, but not limited to, pressure vessels, machinery, piping, tubing and other high and low pressurized items at the Franchised Business for the repair/replacement valuation of all assets. This coverage shall include Business Income/Extra Expenses insurance for additional expenses incurred and/or profits lost; (h) Comprehensive Fidelity/Crime insurance covering Employee Dishonesty with limits no less than $25,000; Forgery with limits no less than $10,000; Money and Securities Inside Premises with limits no less than $10,000; and Money and Securities Outside Premises with limits no less than $10,000; and (i) Commercial Umbrella Liability insurance covering all underlying liability insurance coverages enumerated in this section, with no gaps between underlying and umbrella limits or coverage with excess and primary limits of no less than the equivalent of $3,000,000 per occurrence combined single limit for bodily injury and property damage. 21.02 Proof of Insurance. Prior to the Commencement Date, Franchisee shall make timely delivery of a signed original certificate or certificates of all required insurance coverages to Big O, which shall contain the authorized agent's business name, address and phone number, together with a statement by the insurer that the policy will not be cancelled or materially changed without at least thirty (30) days prior written notice to Big O that the alteration or cancellation is being made. All insurance coverages will be underwritten by a company acceptable to Big O, with a Best's Rating of no less than "A-" or a financial statement of the insurer approved by Big O. If Franchisee fails to purchase required insurance conforming to the standards prescribed by Big O, Big O may obtain such insurance for Franchisee, and Franchisee shall pay Big O the cost of such insurance plus a ten percent (10%) administrative surcharge. 21.03 Survival of Indemnification. The procurement and maintenance of the greater of the prescribed insurance coverages set forth in the Manual or those set forth in the Program shall not relieve Franchisee of any liability to Big O assumed under any indemnification requirement of this Agreement. If Big O deems it appropriate, the Franchisee shall, upon Big O's request, provide to Big O a true, complete certified copy of all, or a part of the Franchisee's insurance policies within 10 days of receiving such request. In addition, upon Big O's request, the Franchisee shall provide to Big O renewal certificates of insurance, or certified insurance binders, for all required coverages no fewer than 10 days before the indicated anniversary date(s) of such insurance coverages. 22. TAXES, PERMITS, AND INDEBTEDNESS 22.01 Payment of Taxes. Franchisee shall promptly pay when due any and all federal, state, and local taxes including without limitation, unemployment and sales taxes, levied or assessed with respect to any Products and Services distributed or sold pursuant to this Agreement and all accounts or other indebtedness of every kind incurred by Franchisee in the operation of the Franchised Business. 22.02 Compliance with Laws. Franchisee shall comply with all applicable federal, state, and local laws, rules and regulations, including, without limitation, environmental laws related to tire disposal. Franchisee shall obtain any and all permits, certificates, and licenses required for the full and proper conduct of the Franchised Business. 22.03 Payment of Debts. Franchisee hereby expressly covenants and agrees to accept full and sole responsibility for any and all debts and obligations incurred in the operation of the Franchised Business. 22 23. INDEMNIFICATION AND INDEPENDENT CONTRACTOR STATUS 23.01 Indemnification. Franchisee agrees to protect, defend, indemnify, and hold Big O and its affiliates, their directors, officers, shareholders, employees and agents jointly and severally, harmless from and against all claims, actions, proceedings, damages, costs, expenses and other losses (including death) and liabilities, consequently, directly or indirectly incurred (including, without limitation, attorneys', accountants' and other related fees) as a result of, arising out of, or connected with the operation of the Franchised Business, including, without limitation, the failure of Franchisee to comply with any relevant environmental and tire disposal laws. Franchisee shall not, however, be liable for claims arising exclusively as a result of Big O's intentional or fraudulent acts or omissions or sole negligence. 23.02 Independent Contractor. In all dealings with third parties, including, without limitation, customers, employees, and suppliers, Franchisee shall disclose in an appropriate manner acceptable to Big O that it is an independent entity operating under a franchise granted by Big O. Franchisee shall submit all applications and enter into all contracts in its designated corporate name or such other fictitious names which have been approved by Big O, but not in the name "Big O Tires" or in any other name which includes the name "Big O". Nothing in this Agreement is intended by the parties hereto to create a fiduciary relationship between them nor to constitute Franchisee or Franchisee's employees or contractors as an agent, legal representative, subsidiary, joint venturer, partner, employee, or servant of Big O for any purpose whatsoever. It is understood and agreed that Franchisee is an independent contractor and is in no way authorized to make any contract, warranty, or representation or to create or imply any obligation on behalf of Big O. 24. WRITTEN APPROVALS, WAIVERS, AND AMENDMENT 24.01 Written Approval. Whenever this Agreement requires Big O's prior approval, Franchisee shall make a timely written request. Unless a different time period is specified in this Agreement, Big O shall respond with its approval or disapproval within fifteen (15) business days. 24.02 Waiver. No failure of Big O to exercise any power reserved to it by this Agreement and no custom or practice of the parties at variance with the terms hereof shall constitute a waiver of Big O's right to demand exact compliance with any of the terms herein. A waiver or approval by Big O of any particular default by Franchisee or any other Big O franchisee or acceptance by Big O of any payments due hereunder shall not be considered a waiver or approval by Big O of any preceding or subsequent breach by Franchisee of any term, covenant, or condition of this Agreement. Big O shall not be deemed to have waived any of its rights under this Agreement, including any right to receive payment in full for any Product or Service provided, nor shall Franchisee be deemed to have been excused from performance of any of its obligations pursuant to this Agreement, unless such waiver or excuse is written and executed by an authorized representative of Big O and Franchisee. 24.03 Modification. No amendment, change, or variance from this Agreement shall be binding upon either Big O or Franchisee except by mutual written agreement. If an amendment of this Agreement is executed at Franchisee's request, any legal fees or costs of preparation of such amendment and any amendment of a franchise registration arising in connection therewith shall be paid by Franchisee. 25. DEALER PLANNING BOARD 25.01 Dealer Planning Board. Big O has established a Dealer Planning Board ("DPB"), consisting of franchisee representatives, which is designed to assist Big O's management in the development of its strategic business plan and to advise Big O's management on issues of concern to Big O franchisees. Through a representative elected from Franchisee's Local Group, Franchisee shall be represented on the DPB. 23 25.02 Special Interest Issues. Big O has granted the DPB the authority to participate with Big O's management in making policy decisions relating to issues in which the DPB is deemed to have a special interest. The issues of "Special Interest" include: (a) advertising policies and the creation of a National Advertising Fund; (b) standards of operation; and the implementation of new programs which may require the addition of new equipment and fixtures for the store; (c) selection of Products and Services offered at Big O Stores; and (d) changes in the Licensed Marks anticipated to require the majority of franchisees to expend more than five thousand dollars ($5,000.00) per Store. 25.03 Disapproval of Management Proposal. With respect to those issues in which the DPB has a Special Interest, the DPB may, after consulting with the members of the Local Groups, vote to disapprove a proposal of Big O's management. If, pursuant to established procedures which have been approved by Big O, the DPB shall disapprove a proposal of Big O's management, the proposal may only become effective if, following a presentation to the Big O board of directors by a representative of the DPB, Big O's board of directors votes to adopt management's proposal. 25.04 Compliance with Modification. Franchisee agrees to comply with any and all modifications to Big O's standards of operation, procedures, or other requirements adopted pursuant to the procedures described in this Section 25. 26. RIGHT OF OFFSET 26.01 Right of Offset. Big O shall have the right at any time before or after termination of this Agreement, without notice to Franchisee, to offset any amounts or liabilities that may be owed by the Franchisee to Big O against any amounts or liabilities that may be owed by Big O to Franchisee under this Agreement or any other agreement, loan, transaction or relationship between the parties. 27. ENFORCEMENT 27.01 Declaratory and Injunctive Relief. Big O or its designee shall be entitled to obtain without bond, declarations, temporary and permanent injunctions, and orders of specific performance: (a) To enforce the provisions of this Agreement relating to: (i) Franchisee's use of the Licensed Marks; (ii) the obligations of Franchisee upon termination or expiration of this Agreement; or (iii) the Transfer and Assignment requirements of Section 18; or (b) to prohibit any act or omission by Franchisee or its employees that: (i) constitutes a violation of any applicable law or regulation; (ii) is dishonest or misleading to prospective or current customers or clients of businesses operated under the System; (iii) constitutes a danger to other Big O franchisees, their employees, customers, clients or the public; or (iv) may impair the goodwill associated with the Licensed Marks. 27.02 Costs of Enforcement. If Big O secures any declaration, injunction or order of specific performance pursuant to Section 27.01 hereof, if any provision of this Agreement is enforced at any time by Big O or if any amounts due from Franchisee to Big O are, at any time, collected by or through an attorney at law or collection agency, Franchisee shall be liable to Big O for all costs and expenses of enforcement and collection including, but not limited to, court costs and reasonable attorneys' fees, including the fair market value of any time expended by legal counsel employed by Big O. 24 28. NOTICES 28.01 Notices. Any notice required to be given hereunder shall be in writing and shall be mailed by registered or certified mail. Notices to Franchisee and Big O shall be addressed to them at their addresses as listed on the Summary Pages or to such other addresses as the parties may hereafter prescribe. A copy of each notice to Big O shall be addressed to Franchisee's designated regional representative. Any notice complying with the provisions hereof shall be deemed to be given on the date of mailing. 29. GOVERNING LAW 29.01 Governing Law. This Agreement is accepted by Big O in the State of Colorado and shall be governed by and interpreted in accordance with Colorado law, which law shall prevail in the event of any conflict of law. Big O and Franchisee consent to personal and subject matter jurisdiction and venue in Denver, Colorado. 29.02 Jurisdiction. The parties hereto agree that it is in their best interest to resolve disputes between them in an orderly fashion and in a consistent manner. Therefore, the parties consent to the exclusive jurisdiction of either Colorado state courts or the United States Federal District Court for the District of Colorado for any litigation relating to this Agreement or the operation of the Franchised Business thereunder. Franchisor and Franchisee irrevocably constitute and appoint the persons designated on paragraphs 10 and 11 of the Summary Pages to be their true and lawful agents, to receive service of any lawful process in any civil litigation or proceeding arising under this Agreement, and service upon such agent shall have the same force and validity as if personal service had been obtained on the other party; provided that notice of service and a copy of any process served shall be sent by registered or certified mail, addressed to the other party at the address specified herein. 30. SEVERABILITY AND CONSTRUCTION 30.01 Severability. Subject to Section 19.01(o), should any part of this Agreement, for any reason, be declared invalid by a court of competent jurisdiction, such decision or determination shall not affect the validity of any remaining portion and such remaining portion shall remain in force and effect as if this Agreement had been executed with the invalid portion eliminated; provided, however, that in the event of a declaration of invalidity, the provision declared invalid shall not be invalidated in its entirety, but shall be observed and performed by the parties to the extent such provision is valid and enforceable. The parties hereby agree that any such provision shall be deemed to be altered and amended to the extent necessary to effect such validity and enforceability. 30.02 Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but such counterparts together shall constitute one and the same instrument. 30.03 Construction. The headings and captions contained herein are for the purpose of convenience and reference only and are not to be construed as part of this Agreement. All terms and words used herein shall be construed to include the number and gender as the context of this Agreement may require. The parties agree that each section of this Agreement shall be construed independently of any other section or provision of this Agreement. 31. ACKNOWLEDGEMENTS (a) Big O acknowledges that Franchisee's principal interest in obtaining the Franchise granted herein is to obtain Big O private brand tires and a competitive source of supply for Products and Services. 25 Big O acknowledges its obligation to seek to attempt, with no obligation, to maintain a competitive source of supply for the benefit of its franchisees and to aid in the promotion of Big O Products and Services. (b) Franchisee understands and acknowledges that the business licensed under this Agreement involves business risks and that Franchisee's volume, profit, income and success is dependent primarily upon Franchisee's ability as an independent business operator. (c) Big O expressly disclaims the making of, and Franchisee acknowledges that it has not received from any representative of Big O, any warranty or guaranty, express or implied, as to the obligation of Big O to provide Franchisee with any specific or sufficient amount of Products and Services or as to the potential volume, profit, income or success of the Franchised Business. (d) Franchisee acknowledges that Big O or its agent has provided Franchisee with a Franchise Offering Circular not later than the earlier of the first personal meeting held to discuss the sale of the Franchise, ten (10) business days before the execution of this Agreement, or ten (10) business days before any payment of any consideration connected to the purchase of this Franchise. Franchisee further acknowledges that Franchisee has read such Franchise Offering Circular and understands its contents. (e) Franchisee acknowledges that Big O has provided Franchisee with a copy of this Agreement and all related documents, fully completed, for at least five (5) business days prior to Franchisee's execution hereof. (f) Franchisee acknowledges that Big O has advised it to consult with its own attorneys, accountants, or other advisers, that Franchisee has had ample opportunity to do so, and that the attorneys for Big O have not advised or represented Franchisee with respect to this Agreement or the relationship hereby created. The name and address of Franchisee's adviser, if any, is set forth on the Summary Pages. (g) Franchisee acknowledges that this Agreement, the documents referred to herein, the attachments hereto, and other agreements signed concurrently with this Agreement, if any, constitute the entire, full and complete Agreement between Big O and Franchisee concerning the subject matter hereof. This Agreement terminates and supersedes any prior agreement between the parties concerning the same subject matter, and any oral or written representations which are inconsistent with the terms of this instrument and its accompanying Franchise Offering Circular. (h) Franchisee acknowledges and recognizes that different terms and conditions, including different fee structure and investment requirements may pertain to different Big O franchises offered in the past, contemporaneously herewith, or in the future, and that Big O does not represent that all franchise agreements are or will be identical. (i) Franchisee acknowledges that except as is specifically set forth in this Agreement, it is not nor is it intended to be a third party beneficiary of this Agreement or any other agreement or contractual relationship to which Big O is a party. 26 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement to become effective on the date it is executed by the last of Franchisee or Big O. FRANCHISEE: CAPS TIRE LIMITED LIABILITY COMPANY, a Colorado limited liability company By: /s/ John B. Adams John B. Adams, President Date: 6/30/93 Home Address: 2925 Geddes Place ----------------- Littleton, Colorado 80122 -------------------------- Home Phone Number: (303) 721-0025 --------------- Office Address: 8151 E. Arapahoe Road --------------------- Englewood, Colorado 80112 -------------------------- Office Phone Number: (303) ------ Title: Attest: Title: (Affix Corporate Seal) FRANCHISEE: CAPS TIRE LIMITED LIABILITY COMPANY, a Colorado limited liability company By: /s/ Suzanne Adams Suzanne Adams, Vice President Date: 6/30/93 Home Address: 2925 Geddes Place ----------------- Littleton, Colorado 80122 -------------------------- Home Phone Number: (303) 721-0025 --------------- Office Address: 8151 E. Arapahoe Road --------------------- Englewood, Colorado 80112 -------------------------- Office Phone Number: (303) ------ Title: Attest: Title: (Affix Corporate Seal) 27 FRANCHISEE: CAPS TIRE LIMITED LIABILITY COMPANY, a Colorado limited liability company By: /s/ Robert Collaer Robert Collaer, Vice President Date: 6/27/93 Home Address: 522 Marjorie Avenue ------------------- Idaho Falls, Idaho 83401 ------------------------- Home Phone Number: (208) 524-1271 --------------- Office Address: 8151 E. Arapahoe Road --------------------- Englewood, Colorado 80112 -------------------------- Office Phone Number: (303) ------ Title: Attest: Title: (Affix Corporate Seal) FRANCHISEE: CAPS TIRE LIMITED LIABILITY COMPANY, a Colorado limited liability company By: /s/ Paula Collaer Paula Collaer, Secretary/Treasurer Date: 6/24/93 Home Address: 522 Marjorie Avenue ------------------- Idaho Falls, Idaho 83401 ------------------------- Home Phone Number: (208) 524-1271 --------------- Office Address: 8151 E. Arapahoe Road --------------------- Englewood, Colorado 80112 -------------------------- Office Phone Number: (303) ------ Title: Attest: Title: (Affix Corporate Seal) 28 FRANCHISOR: BIG O TIRES, INC. By: /s/ Michael F. Manning Michael F. Manning, Vice President, Franchise Development Date: 9/22/93 Attest: /s/ Philip J. Teigen Philip J. Teigen, General Counsel & Secretary Date: 9/22/93 (Affix Corporate Seal) (4/1/93) 29 SCHEDULE 1 ---------- TO -- FRANCHISE AGREEMENT ------------------- BETWEEN BIG O TIRES, INC. AND ----------------------------- CAPS TIRE LIMITED LIABILITY COMPANY, a Colorado limited liability company ------------------------------------------------------------------------- 1. The Premises of referred to in Section 2.01 of the Franchise Agreement shall be: 8151 E. Arapahoe Road --------------------- Englewood, Colorado 80112 . -------------------------- 2. Legal Description of Premises: Lot 2, Greenwood Retail Plaza, Filing No. 3, Arapahoe County, Colorado. 3. Names(s) and address(es) of holder(s) of record fee title to Premises (the landlord): Name: Intermountain Big O Realty -------------------------- Address: 11755 E. Peakview Avenue ------------------------ Englewood, Colorado 80111 -------------------------- Name: Address: Name: Address: 4. Description of Trade Area (a map may be attached if it is initialed by both Franchisee and Big O): The trade area shall consist of the city limits of Englewood, Colorado as defined in the City records at the end of 1992. Schedule 1 Franchise Agreement Page 1 SCHEDULE 2 OWNERSHIP VERIFICATION 1. Name(s) and address(es) of person(s) owning interest in Franchisee and percentage of said person(s) interest: Name: John B. and Suzanne Adams 50% Address: 2925 Geddes Place Littleton, Colorado 80122 Name: Robert and Paula Collaer 50% Address: 522 Marjorie Avenue Idaho Falls, Idaho 83401 Name: Address: STATE OF Colorado ) ) COUNTY OF Arapahoe ) John B. Adams and Paula Collaer, being first duly sworn, says that they are respectively, the President and Secretary of CAPS TIRE LIMITED LIABILITY COMPANY, the above-named corporation, and execute this instrument for and in its behalf, by authority of its officers/shareholders and that they have read the foregoing Agreement and all Exhibits attached thereto. /s/ John B. Adams John B. Adams, President /s/ Paula Collaer Paula Collaer, Secretary Subscribed and sworn to before me this _________________ day of _________________________, 19 _____. Notary Public My Commission Expires: Schedule 2 Franchise Agreement Page 1 SCHEDULE 3 GUARANTY OF FRANCHISEE'S AGREEMENT In consideration of, and as an inducement to, the execution of the foregoing Franchise Agreement by Big O Tires, Inc. ("Big O"), each of the undersigned hereby guarantees unto Big O that CAPS TIRE LIMITED LIABILITY COMPANY, a Colorado limited liability company ("Franchisee") will perform during the term of the Franchise Agreement each and every covenant, payment, agreement and undertaking on the part of Franchisee contained and set forth in or arising out of such Franchise Agreement. Big O, its successors and assigns, may from time to time, without notice to the undersigned (a) resort to the undersigned for payment of any of the liabilities of the Franchisee to Big O, whether or not Big O or its successors have resorted to any property securing any of the liabilities or proceeded against any of the undersigned or any party primarily or secondarily liable on any of the liabilities, (b) release or compromise any liability of the Franchisee or of any of the undersigned hereunder or any liability of any party or parties primarily or secondarily liable on any of the liabilities, and (c) extend, renew or credit any of the liabilities of the Franchisee to Big O for any period (whether or not longer than the original period); alter, amend or exchange any of the liabilities; or give any other form of indulgence, whether under the Franchise Agreement or not. The undersigned further waives presentment, demand, notice of dishonor, protest, nonpayment and all other notices whatsoever, including without limitation: notice of acceptance hereof; notice of all contracts and commitments; notice of the existence or creation of any liabilities under the foregoing Franchise Agreement and of the amount and terms thereof; and notice of all defaults, disputes or controversies between Franchisee and Big O resulting from such Franchise Agreement or otherwise, and the settlement, compromise or adjustment thereof. The undersigned agrees to pay all expenses paid or incurred by Big O in attempting to enforce the foregoing Franchise Agreement and this Guaranty against Franchisee and against the undersigned and in attempting to collect any amounts due thereunder and hereunder, including reasonable attorneys' fees if such enforcement or collection is by or through an attorney-at-law. Any waiver, extension of time or other indulgence granted from time to time by Big O or its agents, successors or assigns, with respect to the foregoing Franchise Agreement, shall in no way modify or amend this Guaranty, which shall be continuing, absolute, unconditional and irrevocable. If more than one person has executed this Guaranty, the term "the undersigned," as used herein shall refer to each such person, and the liability of each of the undersigned hereunder shall be joint and several and primary as sureties. IN WITNESS WHEREOF, each of the undersigned has executed this Guaranty under seal effective as of the date of the foregoing Franchise Agreement. /s/ John B. Collaer Signature 6/30/93 Date JOHN B. ADAMS Printed Name Schedule 3 Franchise Agreement Page 1 2925 Geddes Place Littleton, Colorado 80122 Home Address (303) 721-0025 Home Telephone 8151 E. Arapahoe Road Englewood, Colorado 80112 Business Address (303) Business Telephone Schedule 3 Franchise Agreement Page 2 SCHEDULE 3 GUARANTY OF FRANCHISEE'S AGREEMENT In consideration of, and as an inducement to, the execution of the foregoing Franchise Agreement by Big O Tires, Inc. ("Big O"), each of the undersigned hereby guarantees unto Big O that CAPS TIRE LIMITED LIABILITY COMPANY, a Colorado limited liability company ("Franchisee") will perform during the term of the Franchise Agreement each and every covenant, payment, agreement and undertaking on the part of Franchisee contained and set forth in or arising out of such Franchise Agreement. Big O, its successors and assigns, may from time to time, without notice to the undersigned (a) resort to the undersigned for payment of any of the liabilities of the Franchisee to Big O, whether or not Big O or its successors have resorted to any property securing any of the liabilities or proceeded against any of the undersigned or any party primarily or secondarily liable on any of the liabilities, (b) release or compromise any liability of the Franchisee or of any of the undersigned hereunder or any liability of any party or parties primarily or secondarily liable on any of the liabilities, and (c) extend, renew or credit any of the liabilities of the Franchisee to Big O for any period (whether or not longer than the original period); alter, amend or exchange any of the liabilities; or give any other form of indulgence, whether under the Franchise Agreement or not. The undersigned further waives presentment, demand, notice of dishonor, protest, nonpayment and all other notices whatsoever, including without limitation: notice of acceptance hereof; notice of all contracts and commitments; notice of the existence or creation of any liabilities under the foregoing Franchise Agreement and of the amount and terms thereof; and notice of all defaults, disputes or controversies between Franchisee and Big O resulting from such Franchise Agreement or otherwise, and the settlement, compromise or adjustment thereof. The undersigned agrees to pay all expenses paid or incurred by Big O in attempting to enforce the foregoing Franchise Agreement and this Guaranty against Franchisee and against the undersigned and in attempting to collect any amounts due thereunder and hereunder, including reasonable attorneys' fees if such enforcement or collection is by or through an attorney-at-law. Any waiver, extension of time or other indulgence granted from time to time by Big O or its agents, successors or assigns, with respect to the foregoing Franchise Agreement, shall in no way modify or amend this Guaranty, which shall be continuing, absolute, unconditional and irrevocable. If more than one person has executed this Guaranty, the term "the undersigned," as used herein shall refer to each such person, and the liability of each of the undersigned hereunder shall be joint and several and primary as sureties. IN WITNESS WHEREOF, each of the undersigned has executed this Guaranty under seal effective as of the date of the foregoing Franchise Agreement. /s/ Suzanne Adams Signature 6/30/93 Date SUZANNE ADAMS Printed Name Schedule 3 Franchise Agreement Page 3 2925 Geddes Place Littleton, Colorado 80122 Home Address (303) 721-0025 Home Telephone 8151 E. Arapahoe Road Englewood, Colorado 80112 Business Address (303) Business Telephone Schedule 3 Franchise Agreement Page 4 SCHEDULE 3 GUARANTY OF FRANCHISEE'S AGREEMENT In consideration of, and as an inducement to, the execution of the foregoing Franchise Agreement by Big O Tires, Inc. ("Big O"), each of the undersigned hereby guarantees unto Big O that CAPS TIRE LIMITED LIABILITY COMPANY, a Colorado limited liability company ("Franchisee") will perform during the term of the Franchise Agreement each and every covenant, payment, agreement and undertaking on the part of Franchisee contained and set forth in or arising out of such Franchise Agreement. Big O, its successors and assigns, may from time to time, without notice to the undersigned (a) resort to the undersigned for payment of any of the liabilities of the Franchisee to Big O, whether or not Big O or its successors have resorted to any property securing any of the liabilities or proceeded against any of the undersigned or any party primarily or secondarily liable on any of the liabilities, (b) release or compromise any liability of the Franchisee or of any of the undersigned hereunder or any liability of any party or parties primarily or secondarily liable on any of the liabilities, and (c) extend, renew or credit any of the liabilities of the Franchisee to Big O for any period (whether or not longer than the original period); alter, amend or exchange any of the liabilities; or give any other form of indulgence, whether under the Franchise Agreement or not. The undersigned further waives presentment, demand, notice of dishonor, protest, nonpayment and all other notices whatsoever, including without limitation: notice of acceptance hereof; notice of all contracts and commitments; notice of the existence or creation of any liabilities under the foregoing Franchise Agreement and of the amount and terms thereof; and notice of all defaults, disputes or controversies between Franchisee and Big O resulting from such Franchise Agreement or otherwise, and the settlement, compromise or adjustment thereof. The undersigned agrees to pay all expenses paid or incurred by Big O in attempting to enforce the foregoing Franchise Agreement and this Guaranty against Franchisee and against the undersigned and in attempting to collect any amounts due thereunder and hereunder, including reasonable attorneys' fees if such enforcement or collection is by or through an attorney-at-law. Any waiver, extension of time or other indulgence granted from time to time by Big O or its agents, successors or assigns, with respect to the foregoing Franchise Agreement, shall in no way modify or amend this Guaranty, which shall be continuing, absolute, unconditional and irrevocable. If more than one person has executed this Guaranty, the term "the undersigned," as used herein shall refer to each such person, and the liability of each of the undersigned hereunder shall be joint and several and primary as sureties. IN WITNESS WHEREOF, each of the undersigned has executed this Guaranty under seal effective as of the date of the foregoing Franchise Agreement. /s/ Robert Collaer Signature 6/27/93 Date ROBERT COLLAER Printed Name Schedule 3 Franchise Agreement Page 5 522 Marjorie Avenue Idaho Falls, Idaho 83401 Home Address (208) 524-1271 Home Telephone 8151 E. Arapahoe Road Englewood, Colorado 80112 Business Address (303) Business Telephone Schedule 3 Franchise Agreement Page 6 SCHEDULE 3 GUARANTY OF FRANCHISEE'S AGREEMENT In consideration of, and as an inducement to, the execution of the foregoing Franchise Agreement by Big O Tires, Inc. ("Big O"), each of the undersigned hereby guarantees unto Big O that CAPS TIRE LIMITED LIABILITY COMPANY, a Colorado limited liability company ("Franchisee") will perform during the term of the Franchise Agreement each and every covenant, payment, agreement and undertaking on the part of Franchisee contained and set forth in or arising out of such Franchise Agreement. Big O, its successors and assigns, may from time to time, without notice to the undersigned (a) resort to the undersigned for payment of any of the liabilities of the Franchisee to Big O, whether or not Big O or its successors have resorted to any property securing any of the liabilities or proceeded against any of the undersigned or any party primarily or secondarily liable on any of the liabilities, (b) release or compromise any liability of the Franchisee or of any of the undersigned hereunder or any liability of any party or parties primarily or secondarily liable on any of the liabilities, and (c) extend, renew or credit any of the liabilities of the Franchisee to Big O for any period (whether or not longer than the original period); alter, amend or exchange any of the liabilities; or give any other form of indulgence, whether under the Franchise Agreement or not. The undersigned further waives presentment, demand, notice of dishonor, protest, nonpayment and all other notices whatsoever, including without limitation: notice of acceptance hereof; notice of all contracts and commitments; notice of the existence or creation of any liabilities under the foregoing Franchise Agreement and of the amount and terms thereof; and notice of all defaults, disputes or controversies between Franchisee and Big O resulting from such Franchise Agreement or otherwise, and the settlement, compromise or adjustment thereof. The undersigned agrees to pay all expenses paid or incurred by Big O in attempting to enforce the foregoing Franchise Agreement and this Guaranty against Franchisee and against the undersigned and in attempting to collect any amounts due thereunder and hereunder, including reasonable attorneys' fees if such enforcement or collection is by or through an attorney-at-law. Any waiver, extension of time or other indulgence granted from time to time by Big O or its agents, successors or assigns, with respect to the foregoing Franchise Agreement, shall in no way modify or amend this Guaranty, which shall be continuing, absolute, unconditional and irrevocable. If more than one person has executed this Guaranty, the term "the undersigned," as used herein shall refer to each such person, and the liability of each of the undersigned hereunder shall be joint and several and primary as sureties. IN WITNESS WHEREOF, each of the undersigned has executed this Guaranty under seal effective as of the date of the foregoing Franchise Agreement. /s/ Paula Collaer Signature 6/24/93 Date PAULA COLLAER Printed Name Schedule 3 Franchise Agreement Page 7 522 Marjorie Avenue Idaho Falls, Idaho 83401 Home Address (208) 524-1271 Home Telephone 8151 E. Arapahoe Road Englewood, Colorado 80112 Business Address (303) Business Telephone Schedule 3 Franchise Agreement Page 8 SCHEDULE 4 LEASE RIDER AND MODIFICATION THIS AGREEMENT is made effective _______________ by and between Intermountain Big O Realty ("Landlord"), affiliates, successors and assigns ("Big O"). WHEREAS, Landlord leases or will lease certain premises to Tenant at 8151 E. Arapahoe Road, Englewood, Colorado 80112 ("Premises") under that certain lease agreement dated ___________________________ between Landlord and Tenant ("Lease"); and WHEREAS, Tenant will operate a Big O Tire Store at such Premises under a Franchise Agreement ("Franchise Agreement") between Tenant and Big O; and WHEREAS, the parties hereto desire to provide Big O with certain rights in the event of default under the Lease, Franchise Agreement, or other franchise agreements between Tenant and Big O, if any; NOW, THEREFORE, in consideration of the sum of One ($1.00) Dollar, in hand paid by Big O to Landlord and to Tenant, and other good and sufficient consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. No act, failure to act, event, condition, non-payment or other occurrence ("Event") shall constitute a breach or default under the Lease so as to allow to Landlord any right of acceleration of obligations thereunder, termination, cancellation or rescission: (a) if the Event is the non-payment of rent, unless such Event is not cured within ten (10) days after Notice of Default (as hereinafter defined) has been received by Big O; (b) if the Event is anything other than the non-payment of rent, unless such Event is not cured within twenty-five (25) days after Notice of Default (as hereinafter defined) has been received by Big O, provided, however, if the Event is of such nature that it cannot reasonably be cured within such twenty-five (25) day period, then, in that case such twenty-five (25) day period shall be extended to a period of such length as is reasonably necessary to cure such Event, provided, however, such period shall be extended only so long as Tenant and/or Big O diligently pursues the cure of such Event. 2. Landlord agrees to accept from Big O any payment or performance required under the Lease. Nothing herein shall be construed as requiring Big O to make any payments or perform any obligation under the Lease. 3. As used herein, Notice of Default means written notice specifying the Event claimed and specifically describing, in each instance of a claimed Event, the particular Event and the cure Landlord requires, such Notice of Default to be mailed to Big O at: Big O Tires, Inc. 11755 East Peakview Avenue Englewood, Colorado 80111 Attention: Vice President of Franchise Development 4. In the event Landlord claims that an Event has occurred, or in the event Big O notifies Landlord in writing that Big O is exercising a right to take over possession of the Premises, then, at Big O's option, Landlord shall accept Big O as substitute tenant under the Lease and will co-operate with Big O in turning actual, immediate possession of the Premises over to Big O. In such case, the Lease shall remain in full force and effect, but with Big O as the tenant thereunder. Big O's option, hereinabove granted, may be exercised only if Big O agrees to assume the obligations of the Schedule 4 Franchise Agreement Page 1 Tenant to Landlord under the Lease as of the date Franchisor or its affiliate or successor is given actual possession of the Premises. 5. Landlord agrees that Big O, or its affiliate or successor may sublet or assign the Premises to a new Big O Franchisee on the same terms and conditions as are contained in the Lease. 6. Tenant agrees that if Landlord claims that an Event has occurred, or if any material breach occurs under any Franchise Agreement between Tenant and Big O (whether for the Premises or not), then, Big O shall have the right to: (a) immediate and actual possession of the Premises, and all equipment and inventory therein, which such possession Tenant agrees to give peaceably, and which may be otherwise obtained by Big O by warrant, injunction, temporary restraining order, summary process or such other immediate legal, summary or equitable proceeding or action as Big O may choose. Tenant hereby waives any right to a jury in any such proceeding or action. (b) become the Tenant under the Lease to the exclusion of the Tenant. 7. Tenant agrees that any default under the Lease shall constitute a material breach under all Franchise Agreements between Tenant and Big O, or its affiliates or successors. 8. Tenant and Landlord understand that Big O is entering into or has entered into a Franchise Agreement with Tenant for a Big O Tire Store at the Premises in reliance on the agreements of Tenant and Landlord as herein contained and that Big O, in this instance, would not have otherwise entered into such Franchise Agreement. IN WITNESS WHEREOF, the parties hereto have duly execute and delivered this agreement as of the date first above-listed. LANDLORD: Intermountain Big O Realty By: Witness Attest: (CORPORATE SEAL) TENANT: By: Unofficial Witness Attest: Notary Public (CORPORATE SEAL) BIG O TIRES, INC.: By: Unofficial Witness (CORPORATE SEAL) Notary Public Schedule 4 Franchise Agreement Page 2 SCHEDULE 5 FARM CLASS RIDER Franchisee represents that it reasonably anticipates that at least twenty- five percent (25%) of its Store's Gross Sales on an annual basis will be derived directly from the sale of Farm Class Tires. In reliance on Franchisee's representations, and its consideration for Franchisee to become or remain a Big O franchisee, Big O has offered Franchisee the opportunity to execute this Farm Class Rider. 1. So long as at least twenty-five percent (25%) of Franchisee's Gross Sales on an annual basis are derived directly from Farm Class Tires, Big O agrees to exercise its best efforts to provide Franchisee with access to a supply of Farm Class Tires. Franchisee acknowledges that production and distribution problems occasionally cause supplies to be limited, and that so long as Big O acts in good faith and in a commercially reasonably and lawful manner to obtain access to Farm Class Tires that it shall be deemed in compliance with its obligations hereunder. 2. If Big O fails to comply with its obligations pursuant to Section 1 of this Farm Class Rider and cannot or will not provide Franchisee with access to Farm Class Tires for sixty (60) days following written notice of such failure from Franchisee, as its sole and exclusive remedy, Franchisee shall be relieved of its obligation to pay Big O monthly service fees on that portion of its Gross Sales derived directly from the sale of Farm Class Tires. Any services provided by Franchisee in connection with the sale of Farm Class Tires, and any other Products and Services sold by Franchisee in a transaction involving the sale of Farm Class Tires shall be included in the portion of Franchisee's Gross Sales upon which monthly service fees are payable. Big O may require Franchisee to provide it with documentation to support any exclusion claimed by Franchisee. 3. Big O may terminate Franchisee's rights under this Farm Class Rider without in any way affecting Franchisee's obligations under the Franchise Agreement if the Store's sales of Farm Class Tires during any twelve (12) month period have been less than twenty-five percent (25%) of its Gross Sales. IN WITNESS WHEREOF, the parties have set forth their signatures below. FRANCHISEE: By: Date: Home Address: Home Phone Number: Office Address: Office Phone Number: Title: Attest: Title: (Affix Corporate Seal) Schedule 5 Franchise Agreement Page 1 FRANCHISEE: By: Date: Home Address: Home Phone Number: Office Address: Office Phone Number: Title: Attest: Title: (Affix Corporate Seal) Schedule 5 Franchise Agreement Page 2 SCHEDULE 6 RIDER FOR EXISTING FRANCHISEES EXECUTING THE FRANCHISE AGREEMENT PRIOR TO THE EXPIRATION OF THEIR PRE-EXISTING FRANCHISE AGREEMENT Franchisee is the owner of a Store which is the subject of a franchise agreement which has not yet expired. Franchisee's execution of the attached Franchise Agreement is subject to the following: 1. Unless otherwise provided herein, the attached Franchise Agreement shall expire on the tenth anniversary of the Effective Date of Franchisee's attached Franchise Agreement, to wit: 2. Prior to the expiration of the Franchisee's present franchise agreement, to wit _____________, the monthly continuing services fees (or their functional equivalent) provided in the present franchise agreement shall continue to be the only such fees due to Big O. In all other respects the terms of the attached Franchise Agreement shall be applicable as of the Effective Date of this Franchise Agreement. In Witness Whereof, the parties have set forth their signature below. BIG O TIRES, INC. By: Date: Title: Attest: Title: (Affix Corporate Seal) FRANCHISEE: By: Date: Home Address: Schedule 6 Franchise Agreement Page 1 Home Phone Number: Office Address: Office Phone Number: Title: Attest: Title: (Affix Corporate Seal) FRANCHISEE: By: Date: Home Address: Home Phone Number: Office Address: Office Phone Number: Title: Attest: Title: (Affix Corporate Seal) Schedule 6 Franchise Agreement Page 2 SCHEDULE 7 TRADEMARKS Big O is the sole and exclusive owner of the following trademarks and service marks:
Trademark, Service Mark, Where Registration Registration Trade Name or Logotype Registered Number Date -------------------------- ---------- ------------ ------------ SUN VALLEY Principal 871,318 06/17/69 BIG O Principal 993,415 09/24/74 BIG O Principal 994,466 10/01/74 BIG RIDE Principal 1,009,148 04/22/75 BIG STEEL Principal 1,012,897 06/10/75 BIG TRAK Principal 1,016,826 07/29/75 BIG HAUL Principal 1,018,800 08/26/75 DESIGN OF HUMAN Principal 1,044,068 07/20/76 LIKENESS "SEBASTIAN TREADMORE" BIG FOOT 70 Principal 1,102,059 09/12/78 BIG FOOT 60 Principal 1,102,058 09/12/78 BIG SUR Principal 1,219,035 12/07/82 EXTRA CARE AND DESIGN Principal 1,417,730 11/18/86 LEGACY Principal 1,393,967 05/20/86 ASPEN Principal 1,508,041 10/11/88 BIG O TIRES AND DESIGN Principal 1,559,725 10/01/89 SUN VALLEY III Principal 1,588,734 03/27/90 BIG O TIRES Principal 1,611,160 08/28/90
STATE REGISTRATIONS
Mark State Number Date ------------ -------- ------ -------- BIG O Texas 40967 11/01/82 BIG O Texas 40704 09/02/82 Boss Colorado T28355 04/23/85 Legacy Colorado T29645 10/28/85 Extra Care Colorado T30670 04/22/86
Schedule 7 Franchise Agreement Page 1 CANADIAN REGISTRATIONS
Mark Number Date ---------------------- ------- -------- BIG FOOT 602,897 03/13/92 BIG O TIRES 361,490 10/27/89 BIG O TIRES & DESIGN 259,938 06/12/81 LEGACY 602,896 Pending
Schedule 7 Franchise Agreement Page 2 SCHEDULE 8 CONVERTOR RIDER AMENDMENT TO BIG O FRANCHISE AGREEMENT (CONVERSION) Big O TIRES, INC. ("Big O") and __________________________________ ("Franchisee") entered into a certain Big O Franchise Agreement ("Agreement") on _____________, 19__ and desire to supplement and amend certain terms and conditions of such Agreement in consideration of Franchisee's conversion of a currently operating tire store to a Big O Store. The parties therefore agree as follows: 1. The following paragraph is hereby added to 6.03: Notwithstanding any provision herein to the contrary, Franchisee's obligation to comply with Big O's standards and specifications as are set forth in the Manual shall be phased in for a period of six months from the Commencement Date of the Agreement in accordance with Schedule A, attached hereto and by this reference incorporated herein. Franchisee will be permitted to use Big O's trademarks, service marks, logos and other identifying symbols or names, in its signage, advertising and otherwise, in conjunction with any other previous signage or identifying symbols or names for sixty (60) days from the Commencement Date of this Agreement, in a manner which shall be approved by Big O, which approval shall not be unreasonably withheld. Upon expiration of such sixty day period, Franchisee must use Big O's signage exclusively and remove all other previous signage. 2. Section 6.05 is deleted in its entirety and the following is inserted in its place: 6.05 Commencement of Business. The Big O Store shall be considered to have commenced operation as of the Commencement Date of this Agreement. All modifications required to bring the premises into compliance with the standards and specifications of Big O must be completed within six (6) months of the Commencement Date. 3. Section 7.01(a) is hereby deleted in its entirety and the following is inserted in its place: (a) Franchisee acknowledges that Big O is under no obligation to provide site selection assistance and Big O does not guarantee the success or profitability of the Franchisee's current site in any manner whatsoever. If Franchisee leases the Premises upon which the Store is to be operated, Franchisee agrees to use its best efforts to negotiate with its landlord for execution of a conditional lease assignment in a form which is the same as or similar to the one found on Schedule 4. 4. The following language shall be added to Section 7.01(b): Big O will provide Franchisee with sample blueprints for modification of the interior and exterior of Franchisee's premises, if applicable, but makes no representations or guarantees regarding the suitability of such blueprints for required modification of Franchisee's premises. Schedule 8 Franchise Agreement Page 1 5. Franchisee agrees to convert all other tire stores owned or controlled by it into Big O Stores, in the manner prescribed in Schedule B, attached hereto and by this reference incorporated herein. 6. The terms and conditions of this Conversion Amendment are in addition to or in explanation of the existing terms and conditions of the Agreement and shall prevail over and supersede any inconsistent terms and conditions thereof. Effective this _____ day of ________________, 19__. BIG O TIRES, INC. FRANCHISEE: (Print Name) By: By: Title: Title: Schedule 8 Franchise Agreement Page 2 EX-10.82 23 BIG O LETTER Big O Tires, Inc. 11755 E. Peakview Ave. Englewood, CO 80111 Telephone: (303) 790-2800 FAX: (303) 790-0225 EXHIBIT 10.82 October 19, 1994 Mr. Confidential ------------ Dear _________: In order to allow you to evaluate the possible acquisition (the "Proposed Acquisition") of Big 0 Tires, Inc. (the "Company"), you have received certain information about various inquiries and expressions of interest by third parties in the possible purchase of the Company. All information about the Company furnished by us or our affiliates, or our respective directors, officers, employees, agents or controlling persons (such affiliates and other persons collectively referred to herein as "Representatives"), whether furnished before or after the date hereof, and regardless of the manner in which it is furnished, is referred to in this letter agreement as "Proprietary Information." Proprietary Information does not include, however, information which (a) is or becomes generally available to the public other than as a result of a disclosure by you or your Representatives, (b) was available to you on a non-confidential basis prior to its disclosure by us or (c) becomes available to you on a non- confidential basis from a person other than us or our Representatives who is not otherwise bound by a confidentiality agreement with us or our Representatives, or is not otherwise prohibited from transmitting the information to you. As used in this letter, the term "person" shall be broadly interpreted to include, without limitation, any corporation, company, partnership and individual. Unless otherwise agreed to in writing to us, you agree (a), except as required by law, to keep all Proprietary Information confidential and not to disclose or reveal any Proprietary Information to any person other than those employed by you or on your behalf who are actively and directly participating in the evaluation of the Proposed Acquisition or who otherwise need to know the Proprietary Information for the purpose of evaluating the Proposed Acquisition and to cause those persons to observe the terms of this agreement and (b) not to use Proprietary Information for any purpose other than in connection with the consummation of the Proposed Acquisition in a manner which we have approved. In the event that you are requested pursuant to, or required by, applicable law or regulation or by legal process to disclose any Proprietary Information, you agree that you will provide us with prompt notice of such request(s) to enable us to seek an appropriate protective order. You hereby acknowledge that you are aware, and that you will advise each of your Representatives who are informed as to the matters which are the subject of this letter, that the United States securities laws prohibit any person who has received from an issuer material, non-public information concerning the matters which are the subject of this letter from purchasing or selling securities of such issuer or from communicating such information to any other person under circumstances in which it is reasonably foreseeable that such person is likely to purchase or sell such securities. Unless otherwise required by law, neither you nor your Representatives will, without our prior written consent, disclose to any person (other than those actively and directly participating in the Proposed Acquisition) any information about the Proposed Acquisition, or the terms, conditions or other facts relating thereto, including the fact that discussions are taking place with respect thereto or the status thereof, or the fact that the Proprietary Information has been made available to you. In consideration of our furnishing you with Proprietary Information, you also agree that for a period of three years from the date of this letter agreement, neither you nor any of your Representatives will, without the prior written consent of the Company or its Board of Directors: (a) acquire, offer to acquire, or agree to acquire, directly or indirectly, by purchase or otherwise, any voting securities or direct or indirect rights to acquire any voting securities of the Company or any subsidiary thereof, or of any successor to or person in control of the Company, or any assets of the Company or any subsidiary or division thereof or of any such successor or controlling person; (b) make, or in any way participate, directly or indirectly, in any "solicitation" or "proxies" to vote (as such terms are used in the rules of the Securities and Exchange Commission), or seek to advise or influence any person or entity with respect to the voting of any voting securities of the Company; (c) make any public announcement with respect to, or submit a proposal for, or offer of (with or without conditions) any extraordinary transaction involving the Company or its securities or assets; (d) seek or propose to influence or control the Company's management or policies (or request permission to do so); (e) solicit, encourage or induce any person employed by the Company to leave the Company's employ; or (f) form, join in or in any way participate in a "group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), in connection with any of the foregoing. You will promptly advise the Company of any inquiry or proposal made to you with respect to any of the foregoing. You also agree that the Company will be entitled to equitable relief, including injunction, in the event of any breach of the provisions of this paragraph. If you determine that you do not wish to proceed with the Proposed Acquisition, you will promptly advise us of that decision. In that case, or in the event that the Proposed Acquisition is not consummated by you, you will, upon our request, promptly deliver to us all of the Proprietary Information, including all copies, reproductions, summaries, analyses or extracts thereof or based thereon in your possession or in the possession of any of your Representatives. Although the Proprietary Information contains information which we believe to be relevant for the purpose of your evaluation of the Proposed Acquisition, we do not make any representation or warranty as to the accuracy or completeness of the Proprietary Information. neither we, our affiliates, nor any of our respective officers, directors, employees, agents or controlling persons within the meaning of Section 20 of the Exchange Act shall have any liability to you or any of your Representatives relating to or arising from the use of the Proprietary Information. Without prejudice to the rights and remedies otherwise available to us, we shall be entitled to equitable relief by way of injunction if you or any of your Representatives breach or threaten to breach any of the provisions of this letter agreement. It is further understood and agreed that no failure or delay by us in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any right, power or privilege hereunder. Please confirm your agreement with the foregoing by signing and returning to the undersigned the enclosed duplicate copy of this letter. Big 0 Tires, Inc. By:__________________________________ Accepted and Agreed as of the date first written above: By:___________________________ EX-10.83 24 PORTFOLIO AGREEMENT EXHIBIT 10.83 ________________, 19__ Big O Tires, Inc. ------------------------------------ Dealer 11755 E. Peakview Avenue ------------------------------------ Address Englewood, CO 80111 ------------------------------------ City, State & Zip Code Re: Ultimate Net Loss Dealer Agreement With Portfolio Purchase: Overall Percentage Blocked by Year Gentlemen: You have advised us that you wish to offer for sale to us a "Portfolio" (as hereinafter defined) and certain other "Paper" (as hereinafter defined) from time to time, and we have indicated our willingness to purchase the Portfolio and to consider purchasing other Paper, subject to the terms of this Agreement. In furtherance thereof, we agree as follows: 1. DEFINITIONS. For the purpose of this Agreement: (a) "Agreement" shall mean this Agreement between CIT and the Company, as the same may be amended, modified or supplemented from time to time. (b) "CIT" shall mean The CIT Group/Equipment Financing, Inc., a New York corporation. (c) "Company" shall mean Big O Tires, Inc., a Nevada corporation. (d) "Customer" shall mean the lessee or debtor, as the case may be, under any item of Paper. (e) "Disbursement Letter" shall mean a letter which sets forth the Purchase Price of Paper, the method of calculation thereof, and other information relating thereto, if any, which shall be deemed to be agreed to by the Company and CIT upon the Company's acceptance of the Purchase Price, paid by CIT. (f) "Equipment" shall mean the machinery and equipment, accounts receivable, fixtures, inventory, other personal property and proceeds thereof covered by any Paper. (g) "Fiscal Year" shall initially mean the period beginning on the date of this Agreement and ending December 31, 1994, and thereafter each calendar year, or uncompleted portion thereof, during the term of this Agreement. (h) "Paper" shall mean all chattel paper (as defined in the Uniform Commercial Code), now existing or hereafter arising out of the sale or lease by the Company of any Equipment to any Customer, including without limitation, equipment leases, conditional sale contracts, and loan and security agreements. (i) "Portfolio" shall mean the Paper which is specifically described on Schedule A annexed hereto. (j) "Portfolio Purchase Price" and "Purchase Price" shall have the meanings set forth in Paragraph 4 of this Agreement. (k) "Related Documents" shall mean, with respect to any Paper, related instruments, guaranties, security agreements, representations and warranties, letters of credit, financing statements, recourse agreements, certificates of title, and other documents. (l) "Repurchase Price" shall mean, the Unpaid Balance (as defined herein) of any item of Paper, plus any and all out-of-pocket expenses, and the amount (if any) by which the Portfolio Purchase Price or Purchase Price paid for such Paper exceeds the Unpaid Balance (as of the date of purchase) discounted to present value using the discount rate used to compute its Portfolio Purchase Price or Purchase Price, and less unearned interest or finance charges computed as CIT customarily computes such rebates. The unearned interest or finance charges shall be computed on the basis of actual days elapsed using a 360-day year. The term "out-of-pocket expenses" shall include (without limitation) the cost of repossession of Equipment, storage and sale of Equipment, compliance with applicable legal requirements, reasonable attorneys' fees and court costs, and like expenses incurred by CIT in connection with such Paper. (m) "Unpaid Balance" shall mean the aggregate unpaid balance of any item of Paper (including interest or finance charges) or the aggregate unpaid rentals thereunder, as the case may be, including (without limitation) the amount of any purchase option price, renewal option, or put option price (e.g., price payable by a Customer under a purchase agreement upon demand by Company) to the extent included in the computation of the Purchase Price for such Paper. 2. SALE OF PAPER. Subject to the terms and provisions of this Agreement the Company hereby: (a) sells, assigns and transfers to CIT all of the right, title and interest of the Company in and to the Portfolio; and (b) offers to sell to CIT all Paper as may be created from time to time ("Future Paper") and CIT shall have the right to purchase such of the Future Paper as is acceptable to CIT on mutually agreeable terms and conditions. Any sale or purchase of Paper shall include all of the right, title, and interest of the Company in and to all: (i) Related Documents; (ii) Equipment, wherever located; (iii) rentals, installments and other payments due and to become due thereunder including, without limitation, all amounts payable by Customers upon the exercise of any renewal options or purchase options or for any put option price (to the extent included in the computation of the Purchase Price as reflected in a Disbursement Letter) and all rights to the proceeds of insurance covering the Equipment under any paper together with all of the rights and remedies of the Company thereunder and under any Related Documents, including the right to take in the Company's name, any and all proceedings legal, equitable or otherwise, that the Company might otherwise take save for this assignment; and (iv) proceeds thereof. CIT shall have, in addition to all other rights hereunder, the right to: (1) receive and retain any and all payments and rights thereto under any item of Paper; (2) use or sell and dispose of Equipment and any of the Company's rights thereto; and (3) apply and use such payments, rights, Equipment and proceeds to satisfy any and all obligations of the Company hereunder. CIT does not assume any of the obligations of the Company under any Paper and shall have no duties in respect thereof. 3. TIME AND PLACE OF CLOSING. The closing for the purchase of the Portfolio under this Agreement shall be held at 3:00 p.m. on November, 30, 1994 (the Portfolio Closing Date) at 11755 E. Peakview Avenue, Englewood, CO and the subsequent sale of any Paper shall be held from time to time at such time and place as the Company and CIT may mutually designate. 4. PURCHASE PRICE - PORTFOLIO AND FUTURE PAPER. (a) In consideration of the sale by the Company to CIT of the Portfolio pursuant to this Agreement, CIT hereby agrees to pay to the Company the sum of $________________ (the "Portfolio Purchase Price") which is based on the method of calculation described in Paragraph 5 hereof. The Company warrants and represents that all statements made and balances shown on Schedule A and in any related Disbursement Letter of the Company to CIT are true and correct as at the Portfolio Closing Date and acknowledges that the determination of the Portfolio Purchase Price has been made in reliance upon the accuracy of such information. (b) For each item of Future Paper which is acceptable to CIT, CIT hereby agrees to pay to the Company the purchase price for such item of Paper (the "Purchase Price"), which is based upon the manner of calculation described in Paragraph 5 hereof. (c) On the Portfolio Closing Date and the closing date for any Future Paper, CIT shall deliver its check to the order of the Company (or make payment in such other place or manner as the Company and CIT may agree) in the amount of the Portfolio Purchase or the Purchase Price. 5. COMPUTATION OF PORTFOLIO PURCHASE PRICE AND PURCHASE PRICE FOR FUTURE PAPER. (a) PORTFOLIO PURCHASE PRICE The sum of all present values of the items of Paper set forth on Schedule A and in any related Disbursement Letter as at the Portfolio Closing Date shall be the Portfolio Purchase Price and, in making the computation thereof, the Company warrants that all such present values have been determined by the Company as at the Portfolio Closing Date (assuming installment payments becoming due prior to the Portfolio Closing Date shall be retained by the Company) using a discount rate per year sufficient to yield an interest return on CIT's investment in the Portfolio (i.e., the Portfolio Purchase Price) equal prime rate of Chemical Bank plus 50 basis points plus 2% and; to an actuarial rate of 10 (10%) percent per annum; and prime rate of Chemical Bank plus 2%. (b) PURCHASE PRICE The Purchase Price for each item of Future Paper which is acceptable to CIT, shall be the discounted present value thereof, using a discount rate per year sufficient to yield an interest return on CIT's investment in the Future Paper equal to an actuarial rate to be mutually agreed upon by the Company and CIT in each case, the "Purchase Price," and shall be set forth in a Disbursement Letter. 6. DELIVERY OF PAPER AND OTHER DOCUMENTS TO CIT. Concurrently with the payment pursuant to Paragraph 4 of this Agreement of the Portfolio Purchase Price for the Portfolio or the Purchase Price for Future Paper, the Company shall deliver to CIT: (a) the original counterparts of all items of the Paper; (b) all original copies of Related Documents, except for executed copies retained by lessee or debtor; (c) the acknowledgment copies of Uniform Commercial Code financing statements filed by the Company against each Customer in all appropriate jurisdictions covering the Equipment which is described in such Paper, and duly assigned to CIT, in form and substance satisfactory to CIT; (d) copies of the purchase orders, invoices and executed bills of lading with respect to such Equipment if the Paper represents the financing of the purchase thereof; (e) evidence of insurance coverage on such Equipment, insuring CIT's interest therein and otherwise in form and substance satisfactory to CIT; and (f) such other documents and instruments as CIT may request duly executed by the Company to further implement and effectuate the purposes of this Agreement. 7. WARRANTIES ON PAPER; DOCUMENTATION. (a) As to each item of Paper now or hereafter assigned by the Company to CIT, the Company warrants, represents and guarantees that: (1) such Paper will be paid and performed in accordance with its terms thereunder, subject however to the provisions of Paragraph 13 hereof; (2) it is the owner of the Equipment described in the Paper or has a perfected first security interest or lien thereon effective against all persons and free from all security interests, liens and encumbrances, except for the rights of the Customer under the particular item of Paper, and any security interests or liens in favor of CIT; (3) it has accomplished any filing, recordation or any other action (including registration on a certificate of title, if applicable) which is required to perfect the first security interest in the Equipment; (4) such Paper and all accompanying guaranties, waivers and other instruments are true, valid, genuine, binding and enforceable in accordance with their respective terms; (5) such Paper is the only paper with respect to the Equipment described therein; (6) such Paper is and will continue to be free from defenses, setoffs and counterclaims of any kind and no suit or any legal action or proceeding, administrative, judicial or otherwise has been brought or threatened to be brought by or against the Company in connection therewith; (7) all signatures, names, addresses, amounts and other statements of fact contained therein are true and correct; (8) the Equipment has been delivered (where applicable) to the Customers under such Paper and has been unconditionally accepted by and is presently in the actual possession of and being used by such Customers in their respective business operations and is in good operating condition; (9) it has no knowledge of any denial or liability or the assertion of any claim of invalidity or other defense by any Customer on any such Paper; (10) any discounts or adjustments to which it has agreed are written and apparent on the face of such Paper; (11) it shall comply with all its warranties and other obligations with respect to the Equipment covered by such Paper; (12) such Paper conforms to all applicable laws and regulations; (13) it has not sold, assigned or encumbered any such Paper or the Equipment covered thereby to others or done any act to impair the validity or enforceability of any such Paper; (14) the substance and form of any document used by the Company is and will be legally sufficient and enforceable and in full compliance with any and all applicable Federal, State or local laws, regulations and rules; (15) the Customer under each such item of Paper shall have taken all necessary corporate or other action and shall have obtained all necessary permits or authorizations with respect to its execution and delivery of such Paper and its performance thereof; (16) the computation of all interest, fees and other charges, if any, under any item of Paper has been accurately made and charged and is in full conformity with all applicable laws and regulations; (17) the Company's records pertaining to the Paper are accurate in all material respects; (18) the transaction giving rise to such Paper and the sale and delivery of the Equipment to the Customer conform with all applicable laws, rules or regulations; (19) no payments have been made on such Paper by the Company, any affiliate or by a merchant who referred the Customer to the Company; except that payments have been made on accounts #851, #873 and #926, #927 and #931, #941. 7. WARRANTIES ON PAPER; DOCUMENTATION (CONTINUED) (20) no Customer or any endorser or guarantor thereof is the subject of any bankruptcy or insolvency proceeding; (21) any insurance policies, certificates and coverages relating thereto conform with all applicable laws and regulations; (22) as of the date of purchase of the Paper, any Equipment covered thereby has not been destroyed, repossessed, sold or substantially damaged; and (23) the Equipment described in the Paper is adequately covered by enforceable casualty insurance. All additional assignments, schedules and other documentation with respect to the transfer of Paper to CIT shall be in form and substance acceptable to CIT. (b) The Company shall not, without the prior written consent of CIT waive, modify, extend, renew, release, or discharge the terms of any Paper, or release any Equipment covered thereby, repossess Equipment or consent to the return thereof, or accept collections payable thereunder (except payments due under any item of Paper prior to the closing date on which it was sold by the Company to CIT). (c) In purchasing any item of Paper under this Agreement, the Company acknowledges that CIT shall be relying upon the warranties of the Company as to such item of Paper, and agrees that the knowledge of CIT of any breach of any such warranties at the time of its purchase of any item of Paper or the failure of CIT to call any such breach to the attention of the Company, shall not impair, limit or constitute any waiver of any such warranties or of the obligations of the Company with respect to such Paper, and that the Company shall remain fully liable for any such breach. Furthermore, the review of any such Paper by CIT and the furnishing of any comments in respect thereof to the Company, or the failure to do so in any case, shall not impair, limit, or constitute any waiver of any of the obligations or warranties of the Company with respect to such Paper. (d) In the event any filing or recording of any financing statements or documents are made by CIT, or any such financing statements or documents are prepared by or the execution thereof are supervised by CIT in respect of any Paper, it shall be solely for the convenience of the Company and shall in no way impair, limit or constitute any waiver of the obligations or warranties of the Company with respect to its obligation to assure due compliance with any filing requirements; except to the extent that CIT fails to make any such filings or recordings, and to prepare and supervise the execution of any such financing statements and documents in accordance with its usual practices with respect to financing arrangements of that type or to adhere to the same standards of conduct as would be the case if it were making such financing arrangements directly with the Customer. 8. WAIVERS; NOTIFICATION OF CUSTOMERS. The Company hereby waives presentment, demand, notice of nonpayment, notice of dishonor, and protest as to all Paper sold to CIT hereunder. The Company shall notify all Customers under Paper which is now or hereafter purchased by CIT to make all future payments directly to CIT at such address as CIT shall specify. The Company shall transmit and deliver to CIT, immediately upon receipt thereof, all payments on account of any Paper which the Company may receive subsequent to CIT's purchase thereof. The Company agrees that CIT may endorse in the Company's name, all remittances received and all notes or other instruments (if any) evidencing obligations under the Paper and any assignments thereof. CIT shall, in the ordinary course of business, provide the Company with periodic notices of payment defaults under Paper, in accordance with its usual practices, provided, however, that the failure of CIT to provide such notice in any case shall not affect the Company's obligations under this Agreement or impose any liability upon CIT. The Company agrees that so long as CIT in good faith believes such action to be appropriate under the circumstances, CIT may take any of the following actions with respect to any Paper or any Related Documents, and any Customer or other party obligated thereunder, without impairing, limiting or otherwise affecting the obligation of the Company under this Agreement: (a) make changes, modifications, amendments or alterations, by operation of law or otherwise; (b) grant releases or discharges on terms satisfactory to CIT, or by operation of law; except that CIT excpressly agrees not to release any franchise right of the Company. (c) settle, compromise or adjust any rights, claims or liabilities; (d) grant renewals and extensions of time, for payment or otherwise; and (e) permit the substitution of a Customer or any other party obligated thereunder. 9. ADDITIONAL WARRANTIES BY THE COMPANY. The Company represents, covenants and warrants to CIT that: (a) the Company is duly organized, validly existing and in good standing under laws of its state of incorporation and the Company is duly qualified as a foreign corporation to do business in each state in which the leasing or ownership of property or the nature of the business of the Company requires such qualification; (b) the Company has good and marketable title to all properties and assets, whether real or personal, shown on the latest balance sheets of the Company furnished to CIT prior to the execution of this Agreement, subject to no mortgage, security interest, pledge, lien or encumbrance except as are shown on said balance sheets and except for current taxes not now in default, and since the date of the latest of such balance sheets there has been no material adverse change in the condition, financial or otherwise, of the Company from that shown on said balance sheets; 9. ADDITIONAL WARRANTIES BY THE COMPANY (CONTINUED) (c) at the date of such balance sheets, the Company has no material (individually or in the aggregate) liabilities or obligations of any nature, whether absolute, accrued, contingent or otherwise, due or to become due, other than as reflected or reserved against in said balance sheets, and there have been no material changes since such date, and the Company has no material liability for federal or state income taxes other than as shown on said balance sheets and except for taxes relating to operations since the date of said balance sheets and no federal or state tax deficiency assessment has been made or threatened against the Company and there is no pending claim of deficiency or recommendation of the assessment of any deficiency against the Company; (d) the execution and delivery of this Agreement and the performance thereof by the Company are not in violation of any provisions of the Company's Certificate of Incorporation or By-laws or any indenture or mortgage or other Agreement to which the Company is a party or under which it may be bound; (e) all Paper sold or assigned to CIT hereunder at the time of sale or assignment thereof is owned by the Company free and clear of all security interests, liens, encumbrances and claims in favor of others; (f) the Company has taken all necessary corporate action to authorize its execution, delivery and performance of this Agreement; and (g) during the term of this Agreement, it will furnish CIT: (i) within 95 days after the end of each Fiscal Year, a balance sheet and statements of profit and loss and surplus of the Company as at the end of such Fiscal Year, all prepared in accordance with generally accepted principles and practices of accounting consistently applied, and certified by independent certified public accountants selected by the Company and approved by CIT, such approval not to be unreasonably withheld; (ii) within 50 days after the end of each of the first three quarters of each Fiscal Year, a balance sheet of the Company and statements of profit and loss and surplus as at the end of such quarter, all prepared in accordance with generally accepted principles and practices of accounting consistently applied and certified by the chief financial officer of the Company; and (iii) from time to time, such further information regarding the business affairs and financial condition of the Company as CIT may reasonably require. 10. REPURCHASE OF PAPER. In the event that CIT reasonably determines that: (a) there has been or may be any breach of any warranty,representation, covenant or other obligation of the Company made herein; or (b) the Equipment covered by any Paper shall have been surrendered, damaged beyond repair, destroyed or abandoned by the Customer or repossessed; or (c) as to any item of Paper, the Customer thereunder shall have defaulted in the payment of its obligations thereunder and such default shall have continued uncured by such Customer for 61 days or more, it shall be the obligation of the Company, upon demand by CIT promptly to repurchase the Paper and pay the Repurchase Price for any paper affected by such breach, failure or default. However, in the case of Subparagraph 10(c), provided that none of the events described in Subparagraphs 10(a) or 10(b) have occurred, the Company shall have 30 days after CIT's demand to repurchase such Paper. The Repurchase Price shall be an amount computed as set forth in Paragraph 1(l), less any insurance proceeds previously received by CIT attributable to Equipment covered by the Paper by reason of events referred to in Subparagraph 10(b) above. In the event of any failure by the Company to repurchase any item of Paper, CIT may (but shall not be required to) liquidate such Paper, including the repossession and disposition of Equipment, and the Company shall be liable for any resulting deficiencies and all reasonable expenses incurred in connection therewith. Any repossessed Equipment may be sold for cash or on credit and the net sale proceeds received by CIT shall be considered in computing the deficiency obligation owed by the Company. If an event described in Subparagraph 10(a) or 10(b) above shall occur, the repurchase of Paper and payment of the Repurchase Price resulting therefrom shall be made whether or not the Customer is in default under the Paper. The repurchase of any Paper and the payment of any Repurchase Price hereunder shall not limit or restrict CIT's right to recover any other damages or expenses resulting from breach of this Agreement or to be indemnified as hereinafter set forth. 11. DEFAULT BY THE COMPANY. In the event: (a) the Company shall fail to repurchase and pay for any item of Paper from CIT, as provided in Paragraph 10; or (b) the Company defaults in any other payment obligations, or in the performance or observance of any other covenant, agreement, warranty, representation, or provision contained in this Agreement, or any other agreement with CIT, and such default shall have continued for a period of 20 days after notice thereof to the Company from CIT, or if the default is curable but cannot, in CIT's judgment, be cured within said 20-day period, then within an additional 20 days if the Company commences promptly to cure such default and pursues its best efforts to cure same with continuity and diligence; or 11. DEFAULT BY THE COMPANY (Continued) (c) the Company defaults in the payment of any indebtedness of the Company or under any agreement or instrument under or pursuant to which any such indebtedness may have been issued, created, assumed, or guaranteed by the Company and such default shall continue for more than the period of grace, if any, therein specified, and such indebtedness be declared due and payable; or (d) the Company shall cease to do business as a going concern; admit in writing its inability to pay its debts generally as they become due; make an assignment for the benefit of its creditors; commence a proceeding for the appointment of a receiver, trustee, liquidator or conservator of itself or of the whole or any substantial part of its property; or a complaint or petition or answer seeking reorganization or arrangement or any similar relief under the Federal bankruptcy laws or any other applicable law or statute of the United States of America or any state is filed by the Company or against the Company and not dismissed within 60 days; or a court of competent jurisdiction shall enter an order, judgment or decree appointing a receiver, trustee, liquidator or conservator (or shall otherwise assume custody or control) of the Company or of the whole or any substantial part of its assets; or (e) any information furnished by or on behalf of the Company to CIT relating to the sale of any Paper or the financial condition or business affairs of the Company is determined by CIT to be false or misleading in any material respect; then, if such default shall be continuing, the Company shall, at the option of CIT, without requiring any tender of Paper, promptly repurchase on demand all of the Paper then held by CIT for the aggregate Repurchase Price thereof. Until payment therefor, CIT may (but shall not be required to) liquidate said Paper, including the repossession and disposition of Equipment, and the Company shall be liable for any resulting deficiencies and all reasonable expenses incurred in connection therewith. Any repossessed Equipment may be disposed of for cash or on credit and the net proceeds received by CIT shall be considered in computing the deficiency obligation owed by the Company. Upon the Company's failure within 10 days after demand to repurchase Paper pursuant to this Paragraph, CIT shall have all of the rights and remedies of a secured party under the Uniform Commercial Code and may at any time sell or otherwise dispose of such Paper or any part thereof in a commercially reasonable manner at public or private sale, on at least 10 days' notice to the Company. The Company shall be liable for any difference between its aggregate repurchase obligations on Paper sold to CIT and the net proceeds to CIT of any said sale or disposition, after deducting all costs, charges and expenses incurred in connection therewith, including reasonable attorneys' fees, and other legal expenses. CIT may also institute an action against the Company in a court of competent jurisdiction for a judgment in the amount of the aggregate Repurchase Price of the Paper then held by it, plus any attorneys' fees, costs and expenses incurred by it in enforcing its rights and remedies. All rights and remedies of CIT under this Agreement or any applicable law shall be cumulative. 12. REASSIGNMENT. Concurrently with the payment by the Company of the Repurchase Price pursuant to Paragraphs 10 or 11 for any item of Paper, CIT shall reassign such item of Paper to the Company, without recourse and without representation or warranty except that CIT shall warrant that it has title to the Paper free and clear of liens and encumbrances created by or through CIT. At the request of the Company, CIT shall provide the Company with copies of appropriate documents or computerized material relating to repurchased Paper showing CIT's payment records in respect thereof. All financing statements relating to the subject Paper shall be reassigned to the Company and CIT shall deliver to the Company such original copies of the Paper and Related Documents as may have been previously delivered to CIT by the Company. Prior to the repurchase by the Company, CIT shall file UCC continuation statements, if appropriate, with respect to Paper assigned to it by the Company under this Agreement; however, any failure of CIT to file any such continuation statements shall not be a defense to any repurchase of the related item of Paper by the Company if any lapse in filing is subsequently cured by a new filing without any intervening security interest or lien, or if any such lapse in filing would not otherwise have caused a loss to the Company in respect of such Paper, or if there is such a lapse which results in any intervening security interest or lien, then only to the extent of the actual loss proximately resulting therefrom. 13. ULTIMATE NET LOSS. (a) Except as otherwise provided in Subparagraph 13(i) and as long as the Company shall not be in default hereunder, the Ultimate Net Loss of the Company arising out of its obligation to repurchase Paper under this Agreement, with respect to Paper purchased by CIT, shall not exceed fifty percent ( 50 %) percent of the aggregate Unpaid Balances of all such Paper purchased by CIT, computed as at the date of such purchase. (b) "Ultimate Net Loss," as used herein, shall mean with respect to Paper purchased hereunder, the sum of: (i) all payments made by the Company to CIT upon its repurchase of such Paper; and (ii) the reasonable out-of-pocket expenses incurred by the Company in connection with any recoveries made in the liquidation by it of such Paper and the Equipment covered thereby; but less (iii) the total amount realized by the Company from all sources upon the liquidation of such Paper and the Equipment covered thereby (including any resale of Equipment as to which the Company or any affiliate of the Company has acquired title in default proceedings under the Paper or in satisfaction of the Customer's obligations thereunder) repurchased by the Company from CIT, including recoveries from any party liable on such Paper or any Related Documents and from the sale, lease, or other disposition of Equipment under such Paper. (c) The amount actually received by CIT in cash on any claim in any bankruptcy, receivership, arrangement, or similar proceeding of the Company shall be deemed an amount paid by the Company to CIT under Subparagraph 13(b)(i) above in computing any Ultimate Net Loss hereunder. 13. ULTIMATE NET LOSS (Continued) (d) The Company agrees to take all necessary and appropriate action to recover as much as possible from all parties liable on Paper repurchased by it pursuant to Paragraph 10 of this Agreement and from the Equipment covered thereby. In computing the Ultimate Net Loss sustained by the Company, if the Paper was repurchased pursuant to Paragraph 10 of this Agreement: (i) there shall not be included as a loss any portion of the amount paid to CIT in the repurchase of any item of Paper, unless and until the Company shall have made a bona fide sale of the Equipment covered by such Paper and shall have used its best efforts to recover any amounts owing thereon from all parties liable therefor; and (ii) it shall be deemed that no loss has been suffered by the Company on any such item of repurchased Paper, if the Company fails, within 120 days after the date on which its repurchase of any such item of Paper shall have been demanded by CIT, to both establish its net loss with respect thereto and to notify CIT in writing of such net loss. (e) The Company shall continue to fulfill its obligations under Paragraph 10 hereof with respect to all Paper purchased hereunder or during a particular Fiscal Year, as the case may be, until the Company has incurred the Ultimate Net Loss applicable thereto, determined as set forth in Subparagraph 13(a) hereof. Thereafter, the Company shall not be required to make any payments to CIT with respect to the Paper purchased hereunder or during that Fiscal Year, as the case may be, which is subject to such Ultimate Net Loss provisions, and CIT shall, within 30 days of its receipt of written notice from the Company, repay to the Company the amount of the excess, if any, of the net loss of the Company on such Paper over its Ultimate Net Loss, theretofor paid by the Company to CIT. (f) The Company shall keep separate records with respect to Paper purchased by CIT during each Fiscal Year of all amounts realized by it from the liquidation of Paper repurchased pursuant to Paragraph 10 of this Agreement, including all amounts recovered from those liable on such Paper and all amounts realized from the Equipment covered by such Paper. Upon request, the Company will furnish a written report to CIT, within 30 days of any such request, showing the amount of out-of-pocket expenses incurred in connection with any recoveries made by the Company in the liquidation of such Paper and the amounts realized by the Company from all sources upon the liquidation of such Paper and with respect to any Fiscal Year. CIT shall have the right, at all reasonable times, to audit the records of the Company with respect to such out-of-pocket expenses incurred, recoveries made and amounts realized in respect of such Paper. (g) If and when the Company shall have incurred 50% of the Ultimate Net Loss with respect to the Paper purchased by CIT in a particular Fiscal Year, it shall not thereafter, with respect only to such Paper, without the prior written consent of CIT: (i) sell any Equipment covered by any Paper repurchased by the Company for a price less than the Repurchase Price of such Paper; or (ii) compromise or settle the amount owing on any repurchased Paper for an amount less than the Repurchase Price of such Paper. If CIT fails to so consent within 5 days after its receipt of a written request from the Company to: (i) the sale of Equipment covered by such Paper at an offered price less than the amount of the applicable Repurchase Price; or (ii) acceptance of an offer from a Customer under such Paper to pay, in compromise or settlement, an amount less than such Repurchase Price (each such offer being herein referred to as "close-out offer"); thereafter, either CIT or the Company (with prior written consent of CIT) within 90 days after such written request, are unable to sell such Equipment for a price, or obtain a settlement or compromise from the Customer in an amount, at least equal to such close-out offer, CIT shall pay to the Company for such Equipment and for all of the Company's right, title and interest in the related Paper, an amount equal to such close-out offer. The payment by CIT to the Company of such close-out offer shall be deemed to be a recovery by the Company under clause (iii) of Subparagraph 13(b) hereof. (h) The Ultimate Net Loss limitations under this Paragraph 13 shall be reviewed from time to time upon request of the Company but, any change in such limitations shall be subject to the absolute discretion of CIT and evidenced by the prior written consent and approval of CIT, in each instance. (i) Notwithstanding anything in the foregoing that may be to the contrary, the provisions of this Paragraph 13 for an Ultimate Net Loss by the Company shall in no way impair, limit, or otherwise affect the Company's liability to CIT for: (i) any Paper the Company is required to repurchase from CIT pursuant to Paragraph 10(a) or by reason of any breach by the Company of any warranty (other than a warranty of payment) in respect of said Paper under any assignment or endorsement thereof or under this Agreement or any other agreement as to such Paper; (ii) any Paper which the Company is required to repurchase from CIT pursuant to Paragraph 11 hereof by reason of the occurrence of a default by the Company; (iii) any Paper which the Company shall have purchased from CIT without any prior request or demand by CIT for such repurchase; (iv) any Paper which the Company is required to repurchase pursuant to Subparagraph 10(b) hereof; and (v) any Paper which the Company shall have failed to repurchase in accordance with Paragraph 10(c) hereof. 14. INDEMNIFICATION. The Company shall indemnify and hold CIT harmless from any liability, loss, injury or damage, including without limitation, all incidental and consequential damages, together with all reasonable out-of-pocket costs and expenses relating thereto, including legal and accounting fees and expenses arising out of or resulting directly or indirectly from any breach of any of the representations, warranties, covenants, agreements or any other obligation of the Company hereunder or under the Paper or Related Documents. 15. TERM OF AGREEMENT. This Agreement shall become effective upon acceptance by CIT at its office in 1620 W. Fountainhead Parkway, #600, Tempe, AZ 85282 and shall continue in effect so long as any Paper shall be outstanding (including Paper in liquidation as provided under Subparagraph 13(d) hereof), which was now or hereafter purchased by CIT from the Company, or any other obligations hereunder are outstanding. 16. MODIFICATION AND WAIVER. No modification or waiver of any provision of this Agreement shall be effective unless such modification or waiver shall be in writing and signed by a duly authorized officer of CIT and the same shall then be effective only for the period and on the conditions and for the specific instances and purposes specified in such writing. 17. RIGHT TO REPURCHASE. The Company shall have the right to repurchase any item or paper if the Company informs CIT that the customer and the Company have a dispute arising out of the Franchise Agreement. 18. NOTICES; CHOICE OF LAW; SUCCESSORS AND ASSIGNS. All notices, offers, demands or replies by any party to this Agreement to any other party shall be in writing and (unless otherwise specified) shall be sent by certified mail, return receipt requested, postage prepaid, or by hand delivery, addressed, as the case may be, to CIT at: P.O. Box 27248 ------------------------------------------- Address Tempe, AZ 85285-7248 ------------------------------------------- City State Zip Code Attention: Business Center Manager or to the Company at: 11755 East Peakview Avenue -------------------------- Address Englewood, CO 80111 -------------------------------------------- City State Zip Code or to such other person or address as any party shall designate in writing to the other parties from time to time sent or delivered in like manner, and shall be effective when sent unless otherwise provided in this Agreement. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. This Agreement shall be binding upon and inure to the benefit of the Company and CIT and their respective successors and assigns, but nothing herein shall give the Company the right to assign this Agreement or its rights hereunder without the express prior written consent of CIT. THE CIT GROUP/EQUIPMENT FINANCING, INC. By _________________________ Title ___________________ Accepted and Agreed October 21, 1994 BIG O TIRES, INC. By: /s/ John B. Adams, Executive Vice President Attest: /s/ Philip J. Teigen, Secretary Corporate Seal EX-10.84 25 KELLY DEMAND NOTE [LOGO] THE KELLY SPRINGFIELD TIRE COMPANY 12501 WILLOW BROOK ROAD CUMBERLAND, MARYLAND (301) 777-6000 21502-2599 FAX (301) 777-6008 TELEX: 86211 KST-CUM September 30, 1994 Exhibit 10.84 Big O Tires, Inc. Box 3206 Englewood, CO 80155-3206 Gentlemen: We are sending you a Demand Note dated September 30, 1994 for $4,700,338.67. This note will replace the note given to you June 15, 1993. This Demand Note will have terms and conditions according to the Inventory Financing Agreement, dated September 30, 1994. It is mutually understood and agreed that if our Sales Agreement is cancelled by either party, or if any payment hereunder is not made when due, or if you should be in default in any other obligation to us, demand will be made for immediate payment in cash for the total of the aforesaid note. Your acceptance of this letter with proper attesting, both in the space provided, together with the note, constitutes the full agreement between us as to the Financing Agreement. Very truly yours, /s/ G. L. Sutherland G. L. Sutherland Vice President and CFO Attested: /s/ D.E. Taylor ___________________________ Secretary, K/S Accepted: BIG O TIRES, INC. By: /s/ Steven P. Cloward (seal) Attested: /s/ John B. Adams _______________________ ___________________________ President Assistant Secretary, Big O Tires, Inc. October 7 , 1994 ____________________ DEMAND NOTE ----------- $4,700,338.67 September 30, 1994 ------------- ------------------ The undersigned promises to pay to the order of THE KELLY-SPRINGFIELD TIRE COMPANY, Willowbrook Road, Cumberland, MD. 21502-2599 Four million seven hundred thousand, three hundred thirty eight and ----------- ------------------------------------------------------------------------------- --- 67/100 DOLLARS with interest thereon as per the Inventory Financing Agreement dated September 30, 1994. It is agreed by the maker, guarantors and endorsers that if the note is not paid in accordance with its tenor, all of said payments then unpaid shall, at the option of the holder, immediately become due and payable. No person is authorized to receive a payment upon or make collection of this note unless the note is presented and the amount paid duly endorsed hereon at the time. The makers, guarantors and endorsers hereof severally waive presentment for payment, protest and notice of protest, and nonpayment of this note. In the event of default in the payment of principal, when due, and if action is instituted thereon, the undersigned promises to pay reasonable attorneys' fees and costs of any such action. This instrument and the indebtedness evidenced hereby is subordinated in the manner and to the extent set forth in an agreement (the "Agreement") dated as of September 30, 1994 by the maker and the payee of this instrument in favor of Barclays Business Credit, Inc. (the "Lender") to all indebtedness (including interest) at any time owed by the maker of this inst t to er, and each holder of this instrument, by its acceptance hereof, shall be bound by the Agreement. BIG O TIRES, INC. BIG O TIRES OF IDAHO, INC. By: /s/ John B. Adams (seal) By: /s/ John B. Adams (seal) /s/ John B. Adams /s/ John B. Adams ------------------------------- --------------------------------- Title: Executive Vice President Title: Vice President ------------------------ --------------------------- BIG O RETAIL ENTERPRISES, INC. By: /s/ John B. Adams (seal) ---------------------------- /s/ John B. Adams -------------------------------- Title: Vice President ------------------------ INVENTORY FINANCING AGREEMENT ----------------------------- This Agreement is dated September 30, 1994, between The Kelly-Springfield Tire Company, a Maryland corporation (K/S), and Big O Tires, Inc., a Nevada corporation (Account), and/or Big O Tire of Idaho, Inc. an Idaho corporation, and/or Big O Tire Retail Enterprises, Inc., a Colorado corporation, to assist Account in financing merchandise inventory supplied by K/S, all as provided herein. 1. FINANCED AMOUNT K/S hereby agrees, in consideration of Account's promises and undertakings, to allow Account to finance up to the sum of $4,700,338.67. (The Financed Amount). K/S agrees to convert $4,700,338.67 of Balance outstanding on note originally issued June 15, 1993 in the amount of $6,000,338.67 into the Financed Amount. The Financed Amount shall be payable by Account in accordance with the terms of this Agreement, but all other amounts due from previous purchases and future purchases by Account while this Agreement is in effect, shall be on open account and not subject to this Agreement except in the event of a default hereunder. The existing Purchasing Agreement shall apply to all inventory purchased under this Agreement and to all indebtedness created thereby, and all purchases and indebtedness also will be subject to provisions of any Purchase Agreement existing from time to time between the parties. The term of this Agreement shall commence September 30, 1994, and shall terminate on December 30, 1997. 2. PAYMENT OF FINANCED AMOUNT a.) The Financed Amount plus accrued interest, shall be repaid in thirty-eight (38) installments. The first payment of $115,000 plus interest shall be due October 15, 1994 and continue for the next eleven (11) months. The second twelve (12) payments will be for $125,000 plus interest. The remaining thirteen (13) payments will be for $135,000 plus interest. A final payment of $65,338.67 will be due on November 15, 1997. Each payment is due on the 15th of each month. b.) Account shall have the right to prepay all or any part of the Financed Amount at any time. c.) All payments hereunder shall be made in lawful money of The United States and paid to K/S at the address given in Paragraph eight (8). 3. INTEREST a.) Interest shall be accrued at the rate of prime as defined as follows: Prime interest rate is defined as the rate charged by Citibank, New York, NY, in effect on the first day of each calendar quarter; provided always, however, that PAGE 1 notwithstanding any changes in said bank's prime lending rate, the rate of interest thereon shall never be more than the maximum rate which may from time to time be lawfully charged under currently existing statutes and laws. b.) If all maturities are paid when due, all financial covenants outlined in Section 4 are met, and open account payments are current, then certain credits may be earned by the Account based on the attached Schedule. Any credits earned will be rebated to the account by credit memo on the 15th of the month following each calendar quarter. c.) Prime interest rate as defined in paragraph 3(a) shall not exceed at anytime a maximum of eight percent (8%) for computations required pursuant to this Agreement. 4. COVENANTS So long as the Agreement remains outstanding and unless K/S has specifically waived, in writing and in advance, the obligation of Account in this section 4, Account hereby covenants and agrees with K/S as follows: a.) Tangible Net Worth (TNW) - Account agrees to maintain, at all times while this Agreement is in effect, TNW in the amount of $16,000,000.00 or greater. TNW is defined as tangible assets (excluding patents, copyrights, capitalized research and development costs and other intangible assets) in excess of liabilities. b.) Cash Flow to Long-Term Debt Payments - Account shall not permit or suffer, as of the last day of the fiscal quarter of Account, the ratio of (I) the combined cash flow of Account (cash flow is defined as net income after tax plus depreciation and amortization less cash dividends paid) as calculated for the fiscal quarter then ending plus the three immediately preceding fiscal quarters, to (II) the current portion of Long-Term Debt of Account as of the last day of the fiscal quarter then ending, to be less than 1.7 to 1.0. 5. DEFAULT AND ACCELERATION Any failure of Account (a) to pay a sum due hereunder by its due date (without the requirement of notice by K/S); or (b) to complete any other performance required of it hereunder, after thirty (30) days written notice thereof by K/S; or (c) any default of Account under any agreement at any time in effect between Account and K/S; or (d) failure of Account to pay any sum due K/S; at the election of K/S may be deemed a default under this Agreement. In the event of any default (as defined above) under this Agreement, all sums payable hereunder immediately shall become due and payable, and upon such payment in full this Agreement shall terminate, but in the absence of full payment all rights and remedies of K/S under this Agreement shall continue and shall PAGE 2 be additional to other rights and remedies which may have against Account. Upon any such default, K/S (in addition to its right of acceleration, which shall be automatic upon K/S's election to declare the default) shall have the further right, at its election, to deem such default to be a default also under any or all of the other agreements referred to above, and upon such election K/S shall have the right to pursue any remedy under this Agreement, and-under such other agreement or agreements, in addition to its other rights and remedies under applicable law. 6. TERMINATION The parties also may terminate this Agreement at any time, by their mutual written agreement and upon such notice, if any as they may specify, but neither party shall have the right of termination except as provided herein. Termination shall not affect rights of K/S to collect any and all amount due it. 7. NOTICES All notices and other communications between the parties, as provided in or pursuant to this Agreement, shall be sent by certified mail, return receipt requested, and addressed: To K/S: The Kelly-Springfield Tire Company Attn: General Credit Manager, Dept. 522 12501 Willow Brook Road, SE Cumberland, MD 21502-2599 To Account: Big O Tires, Inc. Big O Tires, Inc. Attn: President Attn: Chief Financial Box 3206 Officer Englewood, CO 80155-3206 Box 3206 303-790-0225 Englewood, CO 80155-3206 FAX 303-790-6064 and shall be deemed given upon such delivery. 8. PAYMENTS All payments shall be sent to: The Kelly-Springfield Tire Company AR 870 PO Box 92603 Chicago, IL 66675-2603 9. GENERAL PROVISIONS a.) Account shall join with K/S in the execution of any instrument reasonably required by K/S to further the purposes of this Agreement. b.) This Agreement shall bind and shall inure to the benefit of the successors, heirs, representatives, and assigns of the parties, but Account shall not assign any interest hereunder without the prior written consent of K/S, which K/S in its sole discretion may withhold. Any modification or amendment of this Agreement must be in writing and signed by the parties. PAGE 3 c.) No waiver by K/S, of any default shall be a waiver of any other default or of the same default on another occasion. d.) This Agreement shall be governed by and construed and enforced in accordance with the Laws of Maryland. e.) If any provision hereof is unenforceable for any reason, the remaining provisions shall continue in effect as if such unenforceable matter were deleted unless such deletion would tend to defeat the essential purposes of the parties. f.) In the event of any default of Account, it shall pay all costs and expenses (including but not limited to reasonable attorney's fees) incurred by K/S in enforcing this Agreement. Executed as of the date first given above. Account: K/S: BIG O TIRES, INC. THE KELLY-SPRINGFIELD TIRE COMPANY By: /s/ John B. Adams (seal) By: /s/ G.L. Sutherland (seal) ---------------------------- ----------------------------- G. L. Sutherland /s/ John B. Adams Title: Vice President and CFO ---------------------------- Title: Executive Vice President Attest/Witness: Attest: /s/ Steven P. Cloward /s/ D.E. Taylor ----------------------------- -------------------------------- Secretary/ The Kelly-Springfield Tire Company BIG O TIRES OF IDAHO, INC. By: /s/ John B. Adams (seal) --------------------------- Title: Vice President Attest/Witness: /s/ Steven P. Cloward ------------------------------ BIG 0 RETAIL ENTERPRISES, INC. By: /s/ John B. Adams (seal) -------------------------- /s/ John B. Adams ----------------------------- Title: Vice President Attest/Witness: /s/ Steven P. Cloward ----------------------------- PAGE 4 SCHEDULE A QUALIFYING INTEREST RATE INTEREST REDUCTION SCHEDULE -------- Effective % of Base Units Interest rate --------------- ------------- Less than 38% Prime + 2% 38.01 - 45.00 Prime 45.01 - 50.00 Prime less .4% 50.01 - 55.00 Prime less .8% 55.01 - 60.00 Prime less 1.2% 60.01 - 65.00 Prime less 1.6% 65.01 - 70.00 Prime less 2.0% 70.01 - 75.00 Prime less 2.25% 75.01 - 80.00 Prime less 2.50% All Kelly-Springfield product qualifies to calculate total purchases supplied including Kelly Brand, Hallmark ect. providing the product is purchased directly from Kelly-Springfield. Base for the following years will be determined by the actual purchases for the preceding year by quarter +/- % Industry Increase/Decrease as reported by RMA for each such quarter. PAGE 5 EX-10.85 26 SUP EXEC RET PLAN EXHIBIT "E" EXHIBIT 10.85 BIG O TIRES, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN THIS SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (the "Plan") is made and entered into this 7th day of December, 1994 by Big O Tires, Inc., a Nevada corporation ("Employer"), effective as of January 1, 1994. 1. Purpose of Plan. The Employer desires to provide certain key employees (each a "Participant") a deferred compensation benefit based upon compensation which each such Participant receives in excess of the limitation on compensation for the purpose of qualified retirement plans. It is the intention of the Employer that this Plan qualify as a plan which is unfunded and maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees and as a result is exempt from the provisions of Parts 2, 3 and 4 of Title I of the Employee Retirement Income Security Act of 1974 ("ERISA") and all provisions of the Plan will be construed in accordance with this intention. 2. Participants. The initial Participants shall be those employees listed on Exhibit A attached hereto and made a part hereof. The Board of Directors of the Employer ("Board") may add or delete employees as participants under this Plan. 3. Amount of Deferred Compensation. The Employer shall maintain for each key employee an account reflecting the number of units of deferred compensation awarded to such Employee pursuant to the terms of this Plan. Each year the Employer determines the contribution that it is made to the Big 0 Tires, Inc. Employee Stock Ownership Plan (the "ESOP"). Such contribution shall be expressed as a percentage of the compensation of the Participants in the ESOP as determined in the sole discretion of the Employer (the "ESOP Percentage Contribution Rate"). Each Participant in this Plan shall receive deferred compensation units each year in an amount equal to the ESOP Percentage Contribution Rate multiplied by such employee's taxable compensation in excess of $150,000 (or such higher amount as is permitted to be counted for the purposes of the ESOP) divided by the value of the corporation's stock as of December 31 of such year. The resulting number shall be the number of units awarded to each such Participant. A unit shall be equal to the value of one share of the corporation's common stock. 4. Maintenance of Accounts. The Employer shall credit each year such amounts determined under Paragraph 3 above to the account of each Participant. The value of the employee's account shall be equal to the number of units multiplied by the value of the corporation's common stock. When distribution is to be made under this Plan, the value shall be determined as of the date distribution commences. In the event the common stock of the corporation is not publicly traded, the valuation used shall be the valuation as of the most recent valuation conducted for the purposes of the Employer's ESOP. The number of units in each Participant's account shall be adjusted for any stock dividends or splits in the same proportion as the outstanding shares of common stock. As of the date on which payment commences, the number of units a participant shall be frozen. 5. Service Requirement. An employee shall be entitled to a percentage of the value of the Participant's deferred compensation account at the time of distribution based upon the number of years of service completed for the Employer. Years of service shall be determined in accordance with the provisions of the Employer's Employee Stock Ownership Plan. The percentage of the Participant's deferred compensation account to be received upon the date of distribution shall be determined as follows based upon the years of service: Less than 2 years 0% Three years 20% Four years 40% Five years 60% Six years 80% Seven or more 100% 6. Unfunded Status. A Participant's account shall be comprised solely of units and the Employer shall not fund any portion of the account prior to payment of deferred compensation to a participant. 7. Distribution on Termination of Employment or Change --------------------------------------------------- of Control. ---------- (a) Upon termination of the employment of the Participant with the Employer for any reason other than death, the Participant will be entitled to receive all amounts credited to the Participant's Account as of the date of termination of employment for any reason. The Participant will receive distribution of all amounts payable to him under this paragraph (a) in installments over the designated period of months, pursuant to the provisions of paragraph (e) of this Section. (b) Upon termination of a Participant's employment with the Employer by reason of death, the Participant's designated beneficiary or beneficiaries will be entitled to receive all amounts credited to the Account of the Participant as of the date of his death. Said amounts shall be payable in installments over the designated period of months, pursuant to the provisions of paragraph (e) of this Section. (c) Upon the death of the Participant prior to complete distribution to him of the entire balance of his Account (and after the date of termination of his service or employment with the Employer as provided in subparagraph (a), above), the balance of his Account on the date of his death shall be payable to the Participant's designated beneficiary or beneficiaries pursuant to subparagraph (e), hereof. (d) Upon a Change of Control, as described herein, of the Employer, the Participant will be entitled to receive all amounts credited to the Participant's Account. The Participant will receive distribution of all amounts payable to him under this paragraph (d) in installments over the designated period of months, pursuant to the provisions of paragraph (e) of this Section. (e) The Employer shall direct distribution of the amounts credited to a Participant's Account, to a Participant or his beneficiary or beneficiaries pursuant to the preceding paragraphs of this Section, in one hundred and twenty (120) equal monthly installment payments, unless the Participant has previously filed an election with the Employer to receive such payment in lump sum or in sixty (60) equal monthly payments, pursuant to the terms of subparagraph (f), hereof. In the event of a distribution pursuant to subparagraph (c), the balance of the Participant's Account shall be paid in accordance with the number of remaining installment payments after taking into consideration that number of payments made to the Participant during his life. Distribution shall be made or commence on the first day of the month next following (i) the date upon which the Participant's service or employment with the Employer terminates in the event of -2- a distribution pursuant to subparagraph (a) of this Section; (ii) the date of the Participant's death in the event of a distribution pursuant to subparagraphs (b) and (c) of this Section, (iii) as soon as possible, but in no event longer than thirty days following a Change of Control; or (iv) the age specified by the Participant in the Distribution Election. All other installment payments, if any, shall be made on the first day of each subsequent month until the Participant's Account is paid in full. Each such installment, if any, shall include interest or other earnings on investment credited to the balance of the Account pursuant to Section 6. (f) At the election of the Participant, as described herein, the Employer shall direct distribution of the amounts credited to a participant's Account in lump sum on or before the last day of the calendar month coinciding with or next following the effective date of the Participant's termination of employment with the Employer, or Change of Control of Employer, or in sixty (6) equal monthly installments beginning within thirty (30) days after the Participant's termination of employment with the Employer, or Change of Control of Employer. Such election shall be made on the Distribution Election form, attached hereto as Exhibit B. The election to be made pursuant to this subparagraph (f), shall not be effective unless made in a writing signed by the Participant and delivered to the Employer prior to January I of the calendar year in which termination of employment or Change of Control occurs. Such election shall be made on the Distribution Election form, attached hereto as Exhibit B. A Participant shall also elect at the time any election is made as to the form of payment, the age at which distribution is to commence or whether distribution is to be made immediately. Such an election shall be made prior to the calendar year in which the distribution takes place. Any election as to distribution shall be irrevocable prior to the date of the event which triggers distribution. (g) The Employer may, at any time and from time to time, determine in its sole discretion to instruct the distribution of the then remaining balance of a Participant's Account in such other manner and in such other amounts as it shall deem appropriate. Except as provided in subparagraph(f), hereof, Participant shall have no right to determine the manner and time of distributions. (h) For purposes of this Plan, Change of Control shall mean: the purchase or other acquisition by any person, entity or group of persons, within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934 ("Act"), or any comparable successor provisions, of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Act) of 50 percent or more of either the outstanding shares of common stock or the combined voting power of Employer's then outstanding voting securities entitled to vote generally, or the approval by the stockholders of Employer's of a reorganization, merger, or consolidation, in each case, with respect to which persons who were stockholders of Employer immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 50 percent of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated Employer's then outstanding securities, or a liquidation or dissolution of Employer or of the sale of all or substantially all of Employer's assets. In addition, Change of Control shall mean the termination of the Employer's Employee Stock Ownership Plan. 8. Participant's Rights: Effect on Other Compensation and Benefits. Any payments or credits under this Plan shall not be deemed salary or other compensation to the Participant for purposes of computing benefits to which the Participant may be entitled under any qualified retirement plan or other arrangement of the Employer for the benefit of its employees. 9. Participant's Rights Unsecured. The right of the Participant or his designated beneficiary or beneficiaries to receive a distribution hereunder shall be an unsecured claim against -3- the general assets of the Employer, and the Plan constitutes a mere promise by the Employer to make benefit payments in the future. Neither the Participant nor his designated beneficiary or beneficiaries shall have any rights in or against any amount credited to his Account or any other specific assets of the Employer. The Participant's rights to benefit payments under the Plan are not subject IN any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors of the Participant or his designated beneficiary or beneficiaries. 10. Designation of Beneficiary. In the event a Participant dies before the credits to his Account are fully paid out, the beneficiary or beneficiaries designated in the last Notice filed with the Board will receive the balance of the credits to the deceased Participant's Account in accordance with the schedule of payments set forth in Section 7 of this Agreement. A form Designation of Beneficiary is attached hereto as Exhibit C. 11. Amendments to the Plan. The Board may amend this Plan at any time without the consent of the Participants or their Beneficiaries, provided, however, that no amendment shall divest any Participant or beneficiary of the credits to his Account, or of any rights to which he would have been entitled if this Plan had been terminated immediately prior to the effective date of such amendment. 12 Termination of the Plan. The Board may terminate this Plan at any time. Upon termination, distribution of the credits to a Participant's Account shall be made in the manner and at the time heretofore prescribed. 13. Expenses. Costs of administration of this Plan will be paid by the Employer as may be determined by the Board in its sole discretion. 14. Notices. Any notice or election required or permitted to be given hereunder shall be deemed to be filed (i) on the date it is personally delivered to the Secretary of the Employer, or (ii) three business days after it is sent by registered or certified mail, addressed to such Secretary at 11755 E. Peakview Ave., Englewood, Colorado 80111. 15. Severability. In the event any one or more of the provisions contained in this Agreement, or any application hereof, shall be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. 16. Governing Law. This Agreement , its interpretation, construction and enforcement shall be governed by the laws of the State of Colorado. 17. Binding Effect. This agreement shall be binding upon and shall inure to the benefit of the Corporation, its successors and assigns, as well as the Stockholders, their respective heirs, legatees and personal representatives. Any pronoun used in the masculine shall be interpreted as the context requires. -4- IN WITNESS WHEREOF, the Employer has caused this instrument to be executed in its name by its duly authorized officers and its corporate seal to be hereunto affixed, this 7th day of December, 1994. "EMPLOYER" Big O Tires, Inc., a Nevada corporation ATTEST: /s/ Philip J. Teigen By: /s/ Thomas L. Staker ------------------------------- --------------------------------------- Mr. Philip J. Teigen, Secretary Mr. Thomas L. Staker Sr. Vice President -5- EXHIBIT A LIST OF PARTICIPANTS as of date of Adoption of Plan Steven P. Cloward John B. Adams -6- EXHIBIT B DISTRIBUTION ELECTION Pursuant to the BIG O TIRES, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (the "Plan"), I hereby elect to receive distribution in the following form depending upon the type of event triggering distribution [check one type of distribution for each event]: 1. Event of Termination 1. Termination of Employment 2. Death [X] Lump sum [X] Lump Sum [_] 60 equal monthly payments [_] 60 equal monthly payments [_] 120 equal monthly payments [_] 120 equal monthly payments 3. Plan Termination 4. Change in Control [X] Lump sum [X] Lump sum [_] 60 equal monthly payments [_] 60 equal monthly payments [_] 120 equal monthly payments [_] 120 equal monthly payments II. I further elect that the payment commencement date shall be the following [select one for each type of termination]: 1. Termination of Employment [X] Immediate [_] Defer until Age [specify]:_____________________ 2. Death [X] Immediate [_] Defer until Age [specify]:_____________________ -7- EXHIBIT C DESIGNATION OF BENEFICIARY Pursuant to the BIG O TIRES, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (the "Plan"), I hereby designate the following individuals as my beneficiaries to receive that percentage, as designated below, of all amounts held for me under the Plan which have not been paid to me at the date of my death. Beneficiary Percentage ----------- ---------- DATED:_______________________ _____________________________ _______________________________ Witness Participant -9- EX-10.86 27 STOCK APP RIGHTS AGREEMENT EXHIBIT 10.86 STOCK APPRECIATION RIGHTS AGREEMENT This STOCK APPRECIATION RIGHTS AGREEMENT ("Agreement") dated as of February 15, 1995, is between Big O Tires, Inc., a Nevada corporation (the "Company"), and John E. Siipola ("Employee"). This Agreement sets forth the terms and conditions of the stock appreciation rights granted by the Company to the Employee. Employee is employed at the pleasure of the Company as its Chairman and a Member of the Office of the Chief Executive, under the direction of the Company's Board of Directors. In consideration of the mutual covenants and agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Employee, intending to be legally bound hereby, agree as follows: 1. GRANT OF STOCK APPRECIATION RIGHTS. ---------------------------------- (a) Subject to vesting as provided in Section 3 hereof, the Company hereby grants Employee 100,000 share equivalent units (the "Units"), each of which shall represent an equal, undivided interest in the future appreciation in the value of a share of the Company's common stock ("Common Stock"). (b) The Company shall not be required to segregate any of its assets in order to provide for the satisfaction of its obligations with respect to the Units awarded herein. The Employee shall have no interest whatsoever in any particular property or assets of the Company. (c) The Units do not, in and of themselves, constitute a share of, or represent any ownership interest in, the Company. The Employee shall have no rights of a shareholder of the Company by virtue of the award of Units herein. The Units represent, upon vesting as provided in Section 3 hereof, the right to cash as provided in Section 5. 2. DESCRIPTION OF UNITS. Subject to vesting as provided in Section 3 hereof, each Unit shall entitle the Employee to receive, in cash only, the difference between the Base Value of a share of Common Stock and the Market Value of a share of Common Stock on the Exercise Date (the "Net Appreciation"). Base Value shall mean $13.875 per share. Market Value shall mean, as of any Exercise Date, the average composite closing price of the Common Stock on the Nasdaq National 1 Market System or any national securities exchange on which the Common Stock is then traded (or if the Common Stock is not then traded on the Nasdaq National Market System or a national securities exchange, the average of the representative closing bid prices of the Common Stock on the Nasdaq Small Cap Market or the over-the-counter market), as reported in the Wall Street Journal for each of the four (4) Trading Days preceding such date. Trading Days shall mean a business day on which shares of the Common Stock have actually traded in the public markets in the U.S. Exercise Date shall have the meaning ascribed to such term in Section 4(c) hereof. 3. VESTING OF UNITS. The Employee's right to exercise any Units granted herein shall not vest until August 16, 1995. Thereafter, the Employee's right pursuant to Section 4 to exercise any Units granted herein shall vest, subject to Sections 4(b) and 7 hereof, at a rate of 16,662 Units on August 16, 1995 and at a rate of 2,777 Units on the last day of each month thereafter until the last day of January, 1998, at which time the 2,805 unvested Units shall vest. Such vesting shall occur only if the Employee is in the full time employ of the Company or any Company subsidiary on each vesting date and has been continually employed (except for such leaves of absence as have been approved by the Company's Board of Directors) for the period commencing as of the date of this Agreement. 4. EXERCISE OF RIGHTS. ------------------ (a) Upon the exercise of the rights relating to each vested Unit, Employee will be entitled to receive payment for the Net Appreciation pursuant to Section 5 hereof. Vested Units may be exercised at the sole discretion of the Employee at any time after August 16, 1995, and continuing thereafter with no expiration date on Employee's right to exercise the Units except as provided herein. (b) On the date the Employee ceases, for any reason, to be employed by the Company, Employee shall forfeit all non-vested Units granted him. For this purpose, Employee's employment shall not be deemed to be continued for any days Employee is paid for accrued vacation or sick pay or for severance pay. If Employee's employment is terminated for any reason other than for Misconduct (as defined in Section 7), upon such termination all vested but unexercised Units shall be deemed to have been immediately exercised and payment shall be made to the Employee or, in the case of the Employee's death, to his designated beneficiary or beneficiaries pursuant to Section 10 hereof. (c) Except as provided in Section 4(b), Employee must give written notice of any exercise of rights with regard to vested Units to the Human Resources Committee of the Company and to the Chief Financial Officer of the Company at the 2 address of the Company. Such written notice must be given in the manner or form as the Human Resources Committee may determine. Any exercise of rights will be deemed to have been made on the date such notice is received by the Human Resources Committee (the "Exercise Date"). 5. PAYMENT FOR UNITS. ----------------- (a) Upon exercise by the Employee of each vested Unit, the value of each Unit will be the Net Appreciation and Employee will be entitled to payment from the Company for the number of vested Units multiplied by the Net Appreciation. (b) Within 10 days after the Exercise Date of any vested Units by the Employee, the Company shall be obligated to pay the Employee in cash which shall be made by check in U.S. dollars (the "Payment Due Date"). If the Company does not have sufficient funds on hand on the Payment Due Date to make a lump sum cash payment due Employee, which determination shall be made by the Company in its sole discretion, the Company may elect to pay one half of the amount due in cash by check in U.S. dollars and to pay the balance by entering into a promissory note with Employee whereby Company will pay the payment to Employee in monthly installments over a period not to exceed 36 months. Such note shall be unsecured and shall bear interest at an annual rate equal to the prime rate as announced by the Company's then primary bank. Upon the death of the Employee prior to complete payment to him of the entire balance of any such note, all remaining payments due under the note shall be payable to the Employee's designated beneficiary or beneficiaries pursuant to Section 10 hereof. Following such payment or the entering of such a note, the Company shall reduce on its records the total number of Units held by the Employee by the number of Units exercised. (c) The Employee shall not be obligated to make any payments to the Company in the event that the value of his Units at any time is less than zero. (d) To the extent required by applicable law, the Company shall make tax withholdings on payments made by the Company. The payments required to be made by the Company under this Section 5 shall be reduced by the amount required to be withheld by the United States Internal Revenue Code and the Regulations adopted thereunder and any applicable state law. 6. CHANGE OF CONTROL OF COMPANY. ---------------------------- (a) If the Effective Date of a Change of Control of the Company shall occur prior to August 16, 1995, Employee shall forfeit all Units, vested and non-vested, 3 granted him and this Agreement shall be considered cancelled and of no further force or effect and no payment shall be due Employee. (b) For purposes of this Agreement, Change of Control shall mean: the purchase or other acquisition by any person, entity or group of persons, within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended ("Act"), or any comparable successor provisions, of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Act) of 50% or more of either the outstanding shares of Common Stock or the combined voting power of the Company's then outstanding voting securities entitled to vote generally, or the approval by the stockholders of the Company of a reorganization, merger, or consolidation, in each case, with respect to which persons (not including the Company's Employee Stock Ownership Plan) who were stockholders of the Company immediately prior to such reorganization, merger or consolidation do not immediately thereafter own more than 50% of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated Company's then outstanding securities, or a liquidation or dissolution of the Company or of the sale of all or substantially all of the Company's assets. Effective Date shall mean the date on which the Change of Control became a legally enforceable transaction between the Company and the other party or parties to the Change of Control transaction. 7. TERMINATION FOR MISCONDUCT. In the event the Employee's employment is terminated for Misconduct, then all unexercised vested Units shall be redeemed by the Company within 30 days after termination of employment for the total cash amount of $1.00 for all such Units. The term Misconduct shall mean (i) repeated failure to report for work other than due to illness or authorized leave of absence; (ii) conviction of a felony; (iii) an act of fraud, embezzlement or dishonesty; (iv) deliberate and intentional violation of the material policies or procedures of the Company; or (v) deliberate and intentional disregard of instructions from the Company's Board of Directors. 8. NONASSIGNABILITY. No right granted herein shall be assignable or transferable by the Employee except by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order. Except as specifically set forth above, the rights shall be exercisable only by the Employee and no other person shall acquire any interest therein. 9. ADJUSTMENT FOR RECAPITALIZATION. If the outstanding shares of Common Stock of the Company are increased, decreased or otherwise changed through a recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar transaction, an appropriate and proportionate adjustment shall 4 be made by the Board of Directors of the Company in the number of Units granted in this Agreement, the non-vested Units granted prior to the change, and Base Value of the Units vested but unexercised. 10. DESIGNATION OF BENEFICIARY. The Employee may designate one or more beneficiaries (who may be designated contingently or successively and which need not be natural persons) to receive payment for his Units pursuant to Sections 4(b) or 5(b) hereof in the event the Employee dies prior to his receiving the full amount to which he is entitled thereunder. If the Employee has not designated a beneficiary, or if a designated beneficiary predeceases the Employee, the Company shall pay the balance of the amount due the deceased Employee or beneficiary to the Employee's or beneficiary's personal representative. 11. NOTICES. All notices to be given hereunder shall be deemed duly given when delivered personally in writing or mailed, certified mail, return receipt requested, postage prepaid and addressed, as follows: (a) If to be given to the Company: Big O Tires, Inc. 11755 East Peakview Avenue Englewood, Colorado 80111 Attn: Chief Financial Officer With a copy of the notice to: Human Resources Committee of Big O Tires, Inc. 11755 East Peakview Avenue Englewood, Colorado 80111 (b) If to be given to Employee: John E. Siipola c/o Big O Tires, Inc. 11755 East Peakview Avenue Englewood, Colorado 80111 or any such other address as either of the parties may furnish to the other in writing in accordance with this Section. 5 12. MISCELLANEOUS. This Agreement may not be changed nor can any provision hereof be waived except by an instrument in writing duly signed by the parties to this Agreement, and for all purposes this Agreement constitutes a separate and independent agreement. This Agreement shall be interpreted, governed and controlled by the laws of the state of Colorado. 13. INTEGRATION. This Agreement represents the entire agreement and understanding of the parties hereto in respect of the matters referred to herein, and supersedes any prior agreement and understanding between the parties hereto in respect of such matters. IN WITNESS WHEREOF, this Agreement has been executed as of the day and year first above written. BIG O TIRES, INC. By: /s/ John B. Adams, Executive Vice President EMPLOYEE: By: /s/ John E. Siipola 6 STOCK APPRECIATION RIGHTS AGREEMENT This STOCK APPRECIATION RIGHTS AGREEMENT ("Agreement") dated as of February 15, 1995, is between Big O Tires, Inc., a Nevada corporation (the "Company"), and Horst K. Mehlfeldt ("Employee"). This Agreement sets forth the terms and conditions of the stock appreciation rights granted by the Company to the Employee. Employee is employed at the pleasure of the Company as its Vice-Chairman and a Member of the Office of the Chief Executive, under the direction of the Company's Board of Directors. In consideration of the mutual covenants and agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Employee, intending to be legally bound hereby, agree as follows: 1. GRANT OF STOCK APPRECIATION RIGHTS. ---------------------------------- (a) Subject to vesting as provided in Section 3 hereof, the Company hereby grants Employee 100,000 share equivalent units (the "Units"), each of which shall represent an equal, undivided interest in the future appreciation in the value of a share of the Company's common stock ("Common Stock"). (b) The Company shall not be required to segregate any of its assets in order to provide for the satisfaction of its obligations with respect to the Units awarded herein. The Employee shall have no interest whatsoever in any particular property or assets of the Company. (c) The Units do not, in and of themselves, constitute a share of, or represent any ownership interest in, the Company. The Employee shall have no rights of a shareholder of the Company by virtue of the award of Units herein. The Units represent, upon vesting as provided in Section 3 hereof, the right to cash as provided in Section 5. 2. DESCRIPTION OF UNITS. Subject to vesting as provided in Section 3 hereof, each Unit shall entitle the Employee to receive, in cash only, the difference between the Base Value of a share of Common Stock and the Market Value of a share of Common Stock on the Exercise Date (the "Net Appreciation"). Base Value shall mean $13.875 per share. Market Value shall mean, as of any Exercise Date, the average composite closing price of the Common Stock on the Nasdaq National 1 Market System or any national securities exchange on which the Common Stock is then traded (or if the Common Stock is not then traded on the Nasdaq National Market System or a national securities exchange, the average of the representative closing bid prices of the Common Stock on the Nasdaq Small Cap Market or the over-the-counter market), as reported in the Wall Street Journal for each of the four (4) Trading Days preceding such date. Trading Days shall mean a business day on which shares of the Common Stock have actually traded in the public markets in the U.S. Exercise Date shall have the meaning ascribed to such term in Section 4(c) hereof. 3. VESTING OF UNITS. The Employee's right to exercise any Units granted herein shall not vest until August 16, 1995. Thereafter, the Employee's right pursuant to Section 4 to exercise any Units granted herein shall vest, subject to Sections 4(b) and 7 hereof, at a rate of 16,662 Units on August 16, 1995 and at a rate of 2,777 Units on the day of each month thereafter until the 16th day of January, 1998, at which time the 2,805 unvested Units shall vest. Such vesting shall occur only if the Employee is in the full time employ of the Company or any Company subsidiary on each vesting date and has been continually employed (except for such leaves of absence as have been approved by the Company's Board of Directors) for the period commencing as of the date of this Agreement. 4. EXERCISE OF RIGHTS. ------------------ (a) Upon the exercise of the rights relating to each vested Unit, Employee will be entitled to receive payment for the Net Appreciation pursuant to Section 5 hereof. Vested Units may be exercised at the sole discretion of the Employee at any time after August 16, 1995, and continuing thereafter with no expiration date on Employee's right to exercise the Units except as provided herein. (b) On the date the Employee ceases, for any reason, to be employed by the Company, Employee shall forfeit all non-vested Units granted him. For this purpose, Employee's employment shall not be deemed to be continued for any days Employee is paid for accrued vacation or sick pay or for severance pay. If Employee's employment is terminated for any reason other than for Misconduct (as defined in Section 7), upon such termination all vested but unexercised Units shall be deemed to have been immediately exercised and payment shall be made to the Employee or, in the case of the Employee's death, to his designated beneficiary or beneficiaries pursuant to Section 10 hereof. (c) Except as provided in Section 4(b), Employee must give written notice of any exercise of rights with regard to vested Units to the Human Resources Committee of the Company and to the Chief Financial Officer of the Company at the 2 address of the Company. Such written notice must be given in the manner or form as the Human Resources Committee may determine. Any exercise of rights will be deemed to have been made on the date such notice is received by the Human Resources Committee (the "Exercise Date"). 5. PAYMENT FOR UNITS. ----------------- (a) Upon exercise by the Employee of each vested Unit, the value of each Unit will be the Net Appreciation and Employee will be entitled to payment from the Company for the number of vested Units multiplied by the Net Appreciation. (b) Within 10 days after the Exercise Date of any vested Units by the Employee, the Company shall be obligated to pay the Employee in cash which shall be made by check in U.S. dollars (the "Payment Due Date"). If the Company does not have sufficient funds on hand on the Payment Due Date to make a lump sum cash payment due Employee, which determination shall be made by the Company in its sole discretion, the Company may elect to pay one half of the amount due in cash by check in U.S. dollars and to pay the balance by entering into a promissory note with Employee whereby Company will pay the payment to Employee in monthly installments over a period not to exceed 36 months. Such note shall be unsecured and shall bear interest at an annual rate equal to the prime rate as announced by the Company's then primary bank. Upon the death of the Employee prior to complete payment to him of the entire balance of any such note, all remaining payments due under the note shall be payable to the Employee's designated beneficiary or beneficiaries pursuant to Section 10 hereof. Following such payment or the entering of such a note, the Company shall reduce on its records the total number of Units held by the Employee by the number of Units exercised. (c) The Employee shall not be obligated to make any payments to the Company in the event that the value of his Units at any time is less than zero. (d) To the extent required by applicable law, the Company shall make tax withholdings on payments made by the Company. The payments required to be made by the Company under this Section 5 shall be reduced by the amount required to be withheld by the United States Internal Revenue Code and the Regulations adopted thereunder and any applicable state law. 6. CHANGE OF CONTROL OF COMPANY. ---------------------------- (a) If the Effective Date of a Change of Control of the Company shall occur prior to August 16, 1995, Employee shall forfeit all Units, vested and non-vested, 3 granted him and this Agreement shall be considered cancelled and of no further force or effect and no payment shall be due Employee. (b) For purposes of this Agreement, Change of Control shall mean: the purchase or other acquisition by any person, entity or group of persons, within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended ("Act"), or any comparable successor provisions, of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Act) of 50% or more of either the outstanding shares of Common Stock or the combined voting power of the Company's then outstanding voting securities entitled to vote generally, or the approval by the stockholders of the Company of a reorganization, merger, or consolidation, in each case, with respect to which persons (not including the Company's Employee Stock Ownership Plan) who were stockholders of the Company immediately prior to such reorganization, merger or consolidation do not immediately thereafter own more than 50% of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated Company's then outstanding securities, or a liquidation or dissolution of the Company or of the sale of all or substantially all of the Company's assets. Effective Date shall mean the date on which the Change of Control became a legally enforceable transaction between the Company and the other party or parties to the Change of Control transaction. 7. TERMINATION FOR MISCONDUCT. In the event the Employee's employment is terminated for Misconduct, then all unexercised vested Units shall be redeemed by the Company within 30 days after termination of employment for the total cash amount of $1.00 for all such Units. The term Misconduct shall mean (i) repeated failure to report for work other than due to illness or authorized leave of absence; (ii) conviction of a felony; (iii) an act of fraud, embezzlement or dishonesty; (iv) deliberate and intentional violation of the material policies or procedures of the Company; or (v) deliberate and intentional disregard of instructions from the Company's Board of Directors. 8. NONASSIGNABILITY. No right granted herein shall be assignable or transferable by the Employee except by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order. Except as specifically set forth above, the rights shall be exercisable only by the Employee and no other person shall acquire any interest therein. 9. ADJUSTMENT FOR RECAPITALIZATION. If the outstanding shares of Common Stock of the Company are increased, decreased or otherwise changed through a recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar transaction, an appropriate and proportionate adjustment shall 4 be made by the Board of Directors of the Company in the number of Units granted in this Agreement, the non-vested Units granted prior to the change, and Base Value of the Units vested but unexercized. 10. DESIGNATION OF BENEFICIARY. The Employee may designate one or more beneficiaries (who may be designated contingently or successively and which need not be natural persons) to receive payment for his Units pursuant to Sections 4(b) or 5(b) hereof in the event the Employee dies prior to his receiving the full amount to which he is entitled thereunder. If the Employee has not designated a beneficiary, or if a designated beneficiary predeceases the Employee, the Company shall pay the balance of the amount due the deceased Employee or beneficiary to the Employee's or beneficiary's personal representative. 11. NOTICES. All notices to be given hereunder shall be deemed duly given when delivered personally in writing or mailed, certified mail, return receipt requested, postage prepaid and addressed, as follows: (a) If to be given to the Company: Big O Tires, Inc. 11755 East Peakview Avenue Englewood, Colorado 80111 Attn: Chief Financial Officer With a copy of the notice to: Human Resources Committee of Big O Tires, Inc. 11755 East Peakview Avenue Englewood, Colorado 80111 (b) If to be given to Employee: Horst K. Mehlfeldt c/o Big O Tires, Inc. 11755 East Peakview Avenue Englewood, Colorado 80111 or any such other address as either of the parties may furnish to the other in writing in accordance with this Section. 5 12. MISCELLANEOUS. This Agreement may not be changed nor can any provision hereof be waived except by an instrument in writing duly signed by the parties to this Agreement, and for all purposes this Agreement constitutes a separate and independent agreement. This Agreement shall be interpreted, governed and controlled by the laws of the state of Colorado. 13. INTEGRATION. This Agreement represents the entire agreement and understanding of the parties hereto in respect of the matters referred to herein, and supersedes any prior agreement and understanding between the parties hereto in respect of such matters. IN WITNESS WHEREOF, this Agreement has been executed as of the day and year first above written. BIG O TIRES, INC. By: /s/ John B. Adams, Executive Vice President EMPLOYEE: By: /s/ Horst K. Mehlfeldt 6 STOCK APPRECIATION RIGHTS AGREEMENT This STOCK APPRECIATION RIGHTS AGREEMENT ("Agreement") dated as of February 15, 1995, is between Big O Tires, Inc., a Nevada corporation (the "Company"), and Steven P. Cloward ("Employee"). This Agreement sets forth the terms and conditions of the stock appreciation rights granted by the Company to the Employee. Employee is employed at the pleasure of the Company as its President and a Member of the Office of the Chief Executive, under the direction of the Company's Board of Directors. In consideration of the mutual covenants and agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Employee, intending to be legally bound hereby, agree as follows: 1. GRANT OF STOCK APPRECIATION RIGHTS. ---------------------------------- (a) Subject to vesting as provided in Section 3 hereof, the Company hereby grants Employee 100,000 share equivalent units (the "Units"), each of which shall represent an equal, undivided interest in the future appreciation in the value of a share of the Company's common stock ("Common Stock"). (b) The Company shall not be required to segregate any of its assets in order to provide for the satisfaction of its obligations with respect to the Units awarded herein. The Employee shall have no interest whatsoever in any particular property or assets of the Company. (c) The Units do not, in and of themselves, constitute a share of, or represent any ownership interest in, the Company. The Employee shall have no rights of a shareholder of the Company by virtue of the award of Units herein. The Units represent, upon vesting as provided in Section 3 hereof, the right to cash as provided in Section 5. 2. DESCRIPTION OF UNITS. Subject to vesting as provided in Section 3 hereof, each Unit shall entitle the Employee to receive, in cash only, the difference between the Base Value of a share of Common Stock and the Market Value of a share of Common Stock on the Exercise Date (the "Net Appreciation"). Base Value shall mean $13.875 per share. Market Value shall mean, as of any Exercise Date, the average composite closing price of the Common Stock on the Nasdaq National 1 Market System or any national securities exchange on which the Common Stock is then traded (or if the Common Stock is not then traded on the Nasdaq National Market System or a national securities exchange, the average of the representative closing bid prices of the Common Stock on the Nasdaq Small Cap Market or the over-the-counter market), as reported in the Wall Street Journal for each of the four (4) Trading Days preceding such date. Trading Days shall mean a business day on which shares of the Common Stock have actually traded in the public markets in the U.S. Exercise Date shall have the meaning ascribed to such term in Section 4(c) hereof. 3. VESTING OF UNITS. The Employee's right to exercise any Units granted herein shall not vest until August 16, 1995. Thereafter, the Employee's right pursuant to Section 4 to exercise any Units granted herein shall vest, subject to Sections 4(b) and 7 hereof, at a rate of 16,662 Units on August 16, 1995 and at a rate of 2,777 Units on the last day of each month thereafter until the 16th day of January, 1998, at which time the 2,805 unvested Units shall vest. Such vesting shall occur only if the Employee is in the full time employ of the Company or any Company subsidiary on each vesting date and has been continually employed (except for such leaves of absence as have been approved by the Company's Board of Directors) for the period commencing as of the date of this Agreement. 4. EXERCISE OF RIGHTS. ------------------ (a) Upon the exercise of the rights relating to each vested Unit, Employee will be entitled to receive payment for the Net Appreciation pursuant to Section 5 hereof. Vested Units may be exercised at the sole discretion of the Employee at any time after August 16, 1995, and continuing thereafter with no expiration date on Employee's right to exercise the Units except as provided herein. (b) On the date the Employee ceases, for any reason, to be employed by the Company, Employee shall forfeit all non-vested Units granted him. For this purpose, Employee's employment shall not be deemed to be continued for any days Employee is paid for accrued vacation or sick pay or for severance pay. If Employee's employment is terminated for any reason other than for Misconduct (as defined in Section 7), upon such termination all vested but unexercised Units shall be deemed to have been immediately exercised and payment shall be made to the Employee or, in the case of the Employee's death, to his designated beneficiary or beneficiaries pursuant to Section 10 hereof. (c) Except as provided in Section 4(b), Employee must give written notice of any exercise of rights with regard to vested Units to the Human Resources Committee of the Company and to the Chief Financial Officer of the Company at the 2 address of the Company. Such written notice must be given in the manner or form as the Human Resources Committee may determine. Any exercise of rights will be deemed to have been made on the date such notice is received by the Chairman of the Human Resources Committee (the "Exercise Date"). 5. PAYMENT FOR UNITS. ----------------- (a) Upon exercise by the Employee of each vested Unit, the value of each Unit will be the Net Appreciation and Employee will be entitled to payment from the Company for the number of vested Units multiplied by the Net Appreciation. (b) Within 10 days after the Exercise Date of any vested Units by the Employee, the Company shall be obligated to pay the Employee in cash which shall be made by check in U.S. dollars (the "Payment Due Date"). If the Company does not have sufficient funds on hand on the Payment Due Date to make a lump sum cash payment due Employee, which determination shall be made by the Company in its sole discretion, the Company may elect to pay one half of the amount due in cash by check in U.S. dollars and to pay the balance by entering into a promissory note with Employee whereby Company will pay the payment to Employee in monthly installments over a period not to exceed 36 months. Such note shall be unsecured and shall bear interest at an annual rate equal to the prime rate as announced by the Company's then primary bank. Upon the death of the Employee prior to complete payment to him of the entire balance of any such note, all remaining payments due under the note shall be payable to the Employee's designated beneficiary or beneficiaries pursuant to Section 10 hereof. Following such payment or the entering of such a note, the Company shall reduce on its records the total number of Units held by the Employee by the number of Units exercised. (c) The Employee shall not be obligated to make any payments to the Company in the event that the value of his Units at any time is less than zero. (d) To the extent required by applicable law, the Company shall make tax withholdings on payments made by the Company. The payments required to be made by the Company under this Section 5 shall be reduced by the amount required to be withheld by the United States Internal Revenue Code and the Regulations adopted thereunder and any applicable state law. 6. CHANGE OF CONTROL OF COMPANY. ---------------------------- (a) If the Effective Date of a Change of Control of the Company shall occur prior to August 16, 1995, Employee shall forfeit all Units, vested and non-vested, 3 granted him and this Agreement shall be considered cancelled and of no further force or effect and no payment shall be due Employee. (b) For purposes of this Agreement, Change of Control shall mean: the purchase or other acquisition by any person, entity or group of persons, within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended ("Act"), or any comparable successor provisions, of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Act) of 50% or more of either the outstanding shares of Common Stock or the combined voting power of the Company's then outstanding voting securities entitled to vote generally, or the approval by the stockholders of the Company of a reorganization, merger, or consolidation, in each case, with respect to which persons (not including the Company's Employee Stock Ownership Plan) who were stockholders of the Company immediately prior to such reorganization, merger or consolidation do not immediately thereafter own more than 50% of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated Company's then outstanding securities, or a liquidation or dissolution of the Company or of the sale of all or substantially all of the Company's assets. Effective Date shall mean the date on which the Change of Control became a legally enforceable transaction between the Company and the other party or parties to the Change of Control transaction. 7. TERMINATION FOR MISCONDUCT. In the event the Employee's employment is terminated for Misconduct, then all unexercised vested Units shall be redeemed by the Company within 30 days after termination of employment for the total cash amount of $1.00 for all such Units. The term Misconduct shall mean (i) repeated failure to report for work other than due to illness or authorized leave of absence; (ii) conviction of a felony; (iii) an act of fraud, embezzlement or dishonesty; (iv) deliberate and intentional violation of the material policies or procedures of the Company; or (v) deliberate and intentional disregard of instructions from the Company's Board of Directors. 8. NONASSIGNABILITY. No right granted herein shall be assignable or transferable by the Employee except by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order. Except as specifically set forth above, the rights shall be exercisable only by the Employee and no other person shall acquire any interest therein. 9. ADJUSTMENT FOR RECAPITALIZATION. If the outstanding shares of Common Stock of the Company are increased, decreased or otherwise changed through a recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar transaction, an appropriate and proportionate adjustment shall 4 be made by the Board of Directors of the Company in the number of Units granted in this Agreement, the non-vested Units granted prior to the change, and Base Value of the Units vested but unexercised. 10. DESIGNATION OF BENEFICIARY. The Employee may designate one or more beneficiaries (who may be designated contingently or successively and which need not be natural persons) to receive payment for his Units pursuant to Sections 4(b) or 5(b) hereof in the event the Employee dies prior to his receiving the full amount to which he is entitled thereunder. If the Employee has not designated a beneficiary, or if a designated beneficiary predeceases the Employee, the Company shall pay the balance of the amount due the deceased Employee or beneficiary to the Employee's or beneficiary's personal representative. 11. NOTICES. All notices to be given hereunder shall be deemed duly given when delivered personally in writing or mailed, certified mail, return receipt requested, postage prepaid and addressed, as follows: (a) If to be given to the Company: Big O Tires, Inc. 11755 East Peakview Avenue Englewood, Colorado 80111 Attn: Chief Financial Officer With a copy of the notice to: Human Resources Committee of Big O Tires, Inc. 11755 East Peakview Avenue Englewood, Colorado 80111 (b) If to be given to Employee: Steven P. Cloward 7732 South Glencoe Court Littleton, Colorado 80122 or any such other address as either of the parties may furnish to the other in writing in accordance with this Section. 12. MISCELLANEOUS. This Agreement may not be changed nor can any provision hereof be waived except by an instrument in writing duly signed by the 5 parties to this Agreement, and for all purposes this Agreement constitutes a separate and independent agreement. This Agreement shall be interpreted, governed and controlled by the laws of the state of Colorado. 13. INTEGRATION. This Agreement represents the entire agreement and understanding of the parties hereto in respect of the matters referred to herein, and supersedes any prior agreement and understanding between the parties hereto in respect of such matters. IN WITNESS WHEREOF, this Agreement has been executed as of the day and year first above written. BIG O TIRES, INC. By: /s/ John B. Adams, Executive Vice President EMPLOYEE: By: /s/ Steven P. Cloward 6 EX-10.87 28 SIIPOLA SEVERENCE [LOGO] BIG O TIRES, INC. 11755 E. Peakview Ave. Englewood, CO 80111 Telephone: (303) 790-2800 FAX: (303) 790-0225 EXHIBIT 10.87 March 24, 1995 John E. Siipola 32 Upper Bay Road Sunapee, NH 03782 RE: Severance Package Dear John: On behalf of the Board of Directors, I am writing you to confirm our arrangement regarding severance payments that will be made to you in the event that a change of control of the Company takes place between February 15, 1995, and August 16, 1995, inclusive. As directed by the Board of Directors, the Human Resources Committee has confirmed that your severance package will consist solely of a lump sum payment of $150,000 in the event that such change of control occurs and your position within the Company terminates as a result thereof. In the event that you have any questions regarding this package, please let me know. Sincerely, /s/ Frank L. Carney Frank L. Carney Chairman, Human Resources Committee of the Board of Directors cc: Board of Directors Personnel File EX-10.88 29 MEHLFELDT SEVERENCE [LOGO] BIG O TIRES, INC. 11755 E. Peakview Ave. Englewood, CO 80111 Telephone: (303) 790-2800 FAX: (303) 790-0225 EXHIBIT 10.88 March 24, 1995 Horst K. Mehlfeldt 207 Lake Point Drive Akron, OH 44333 RE: Severance Package Dear Horst: On behalf of the Board of Directors, I am writing you to confirm our arrangement regarding severance payments that will be made to you in the event that a change of control of the Company takes place between February 15, 1995, and August 16, 1995, inclusive. As directed by the Board of Directors, the Human Resources Committee has confirmed that your severance package will consist solely of a lump sum payment of $150,000 in the event that such change of control occurs and your position within the Company terminates as a result thereof. In the event that you have any questions regarding this package, please let me know. Sincerely, /s/ Frank L. Carney Frank L. Carney Chairman, Human Resources Committee of the Board of Directors cc: Board of Directors Personnel File EX-21.1 30 SUBSIDIARIES EXHIBIT 21.1 SUBSIDIARIES ------------ Big O Tire of Idaho, Inc., an Idaho corporation Big O Retail Enterprises, Inc., a Colorado corporation Big O Development, Inc., a Colorado corporation O Advertising, Inc., a Colorado corporation EX-24.1 31 POWER OF ATTORNEY EXHIBIT 24.1 POWER OF ATTORNEY Each person whose signature appears below constitutes and appoints John B. Adams and Philip J. Teigen, and each of them, his true and lawful attorneys-in- fact and agents, with full power of substitution and resubstitution, for him in his name, place and stead, in his capacity as an Officer, Director, or both, of Big O Tires, Inc., a Nevada corporation ("Company"), to sign the Form 10-K Report of the Company for the year-ended December 31, 1993, and any and all amendments thereto and to file the same with the United States Securities and Exchange Commission, granting on said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite necessary to be done in and about the premises, as fully to all agents and purposes as he might or could do in person, hereby qualifying and confirming all that said attorneys-in-fact or agents or any of them, or their or his substitute or substitutes, may fully do or cause to be done by virtue hereof. Signature Title Date --------- ----- ---- /s/ John B. Adams Executive Vice President, 03/22/95 ----------------- Chief Financial Officer ---------- John B. Adams and Director Director ------------------- ---------- Ronald D. Asher /s/ Frank L. Carney Director 03/23/95 ----------------------- ---------- Frank L. Carney /s/ Steven P. Cloward Director 03/22/95 ----------------------- ---------- Steven P. Cloward /s/ Everett H. Johnston Director 03/23/95 ----------------------- ---------- Everett H. Johnston /s/ Horst K. Mehlfeldt Vice-Chairman and Director 03/22/95 ----------------------- ---------- Horst K. Mehlfeldt /s/ John E. Siipola Director 03/22/95 ----------------------- ---------- John E. Siipola /s/ Ralph J. Weiger Director 03/23/95 ----------------------- ---------- Ralph J. Weiger /s/ C. Thomas Wernholm Director 03/23/95 ----------------------- ---------- C. Thomas Wernholm APPENDIX 1 The undersigned Directors of Big O Tires, Inc., a Nevada corporation, hereby waive notice of the Special Meeting by way of consent and without an actual meeting on March 7, 1995 and consent to all actions taken at said meeting as reflected in the above minutes. DIRECTOR DATE --------- ---- ----------------- ---------- John B. Adams /s/ Ronald D. Asher 3-21-95 ------------------- ---------- Ronald D. Asher ----------------------- ---------- Frank L. Carney ----------------------- ---------- Steven P. Cloward ----------------------- ---------- Everett H. Johnston ----------------------- ---------- Horst K. Mehlfeldt ----------------------- ---------- John E. Siipola ----------------------- ---------- Ralph J. Weiger ----------------------- ---------- C. Thomas Wernholm 2 EX-27.1 32 FINANCIAL DATA SCHEDULE
5 YEAR DEC-31-1994 DEC-31-1994 4,882,000 0 11,905,000 (835,000) 14,219,000 33,718,000 17,177,000 (5,146,000) 61,968,000 9,051,000 0 334,000 0 0 34,795,000 61,968,000 127,678,000 127,678,000 97,547,000 97,547,000 24,025,000 0 1,465,000 4,641,000 1,950,000 2,691,000 0 0 0 2,691,000 .80 .80